Hedging LIBOR Derivatives in a Field Theory Model of Interest Rates
Physics and Society
2008-12-02 v2 Pricing of Securities
Abstract
We investigate LIBOR-based derivatives using a parsimonious field theory interest rate model capable of instilling imperfect correlation between different maturities. Delta and Gamma hedge parameters are derived for LIBOR Caps against fluctuations in underlying forward rates. An empirical illustration of our methodology is also conducted to demonstrate the influence of correlation on the hedging of interest rate risk.
Keywords
Cite
@article{arxiv.physics/0504221,
title = {Hedging LIBOR Derivatives in a Field Theory Model of Interest Rates},
author = {Belal E. Baaquie and Cui Liang and Mitch C. Warachka},
journal= {arXiv preprint arXiv:physics/0504221},
year = {2008}
}
Comments
34 pages, 10 figures