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Libor Market Mode - Theory and Practice

Diploma Thesis 2006 119 Pages

Economics - Monetary theory and policy

Summary

The goal of this thesis is to examine the LMM theoretically and apply practically to derivatives pricing. The input data structuring and calibration to market and historical data, implementing and pricing issues will be specifically investigated.
This work begins with the comparison of the LMM to alternative interest rate models in chapter 2. A review of basic theory of the valuation of derivatives, which will be used in the next chapters, is presented in chapter 3. Theoretical description of the LMM is presented in the next chapter. Chapter 5 investigates several methods of calibrating directly to market cap and swaption prices. The way of obtaining the initial Libor yield curve is also summarized. In chapter 6 and 7 modeling of forward Libor rates volatility and correlation is presented. Hedging issues are to find in chapter 8. Chapter 9 covers pricing with the LMM by Monte Carlo simulations. This chapter presents the results of imple-menting the cascade calibration and of valuation of derivatives to illustrate the performance of the LMM. Finally the last chapter summarises and concludes the thesis.

Details

Pages
119
Year
2006
ISBN (eBook)
9783638483100
File size
1 MB
Language
English
Catalog Number
v52659
Institution / College
University of Frankfurt (Main)
Grade
2.0
Tags
Libor Market Model Theory Practice

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Title: Libor Market Mode - Theory and Practice