Related papers: SABR smiles for RFR caplets
We provide a unified framework for modeling LIBOR rates using general semimartingales as driving processes and generic functional forms to describe the evolution of the dynamics. We derive sufficient conditions for the model to be…
We present a flexible approach for the valuation of interest rate derivatives based on Affine Processes. We extend the methodology proposed in Keller-Ressel et al. (2009) by changing the choice of the state space. We provide…
We show that, for the purpose of pricing Swaptions, the Swap rate and the corresponding Forward rates can be considered lognormal under a single martingale measure. Swaptions can then be priced as options on a basket of lognormal assets and…
In this article, we review the construction and properties of some popular approaches to modeling LIBOR rates. We discuss the following frameworks: classical LIBOR market models, forward price models and Markov-functional models. We close…
The stochastic-alpha-beta-rho (SABR) model has been widely adopted in options trading. In particular, the normal ($\beta=0$) SABR model is a popular model choice for interest rates because it allows negative asset values. The option price…
We propose an efficient, accurate and reliable simulation scheme for the stochastic-alpha-beta-rho (SABR) model. The two challenges of the SABR simulation lie in sampling (i) integrated variance conditional on terminal volatility and (ii)…
In some options markets (e.g. commodities), options are listed with only a single maturity for each underlying. In others, (e.g. equities, currencies), options are listed with multiple maturities. In this paper, we provide an algorithm for…
We observe that a European Call option with strike $L > K$ can be seen as a Call option with strike $L-K$ on a Call option with strike $K$. Under no arbitrage assumptions, this yields immediately that the prices of the two contracts are the…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
The paper proposes an expanded version of the Local Variance Gamma model of Carr and Nadtochiy by adding drift to the governing underlying process. Still in this new model it is possible to derive an ordinary differential equation for the…
Reference prices have long been studied in applied economics and business research. One of the classic formulations of the reference price is in terms of an iterative function of past prices. There are a number of limitations of such a…
This paper advances interest rate modeling in the post-LIBOR era by introducing rough stochastic volatility into the Forward Market Model (FMM). We establish a rigorous asymptotic expansion of swaption implied volatility, connecting the FMM…
The main result of this paper that a martingale evolution can be chosen for Libor such that all the Libor interest rates have a common market measure; the drift is fixed such that each Libor has the martingale property. Libor is described…
Vanna-Volga is a popular method for the interpolation/extrapolation of volatility smiles. The technique is widely used in the FX markets context, due to its ability to consistently construct the entire Lognormal smile using only three…
We derive analytic formulae which link $\alpha$, $\nu$ and $\rho$ parameters in Andreasen-Huge style SABR model to the ATM price and option prices at four strikes close to ATM. Based on these formulae we give a characterisation for the SABR…
Comparing different age estimation methods poses a challenge due to the unreliability of published results stemming from inconsistencies in the benchmarking process. Previous studies have reported continuous performance improvements over…
Although recent approaches to face normal estimation have achieved promising results, their effectiveness heavily depends on large-scale paired data for training. This paper concentrates on relieving this requirement via developing a…
Accurately characterizing the implied volatility curves is a central challenge in option pricing and risk management. The classical SABR model by Hagan et al. has been widely adopted in practice due to its well-defined stochastic volatility…
We explore the robust replication of forward-start straddles given quoted (Call and Put options) market data. One approach to this problem classically follows semi-infinite linear programming arguments, and we propose a discretisation…
We develop a new method called affine facial reduction (FR) for recovering Slater's condition for semidefinite programming (SDP) relaxations of combinatorial optimization (CO) problems. Affine FR is a user-friendly method, as it is fully…