LIBOR additive model calibration to swaptions markets

Jesús P. Colino, Francisco J. Nogales and Winfried Stute

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: In the current paper, we introduce a new calibration methodology for the LIBOR market model driven by LIBOR additive processes based in an inverse problem. This problem can be splitted in the calibration of the continuous and discontinuous part, linking each part of the problem with at-the-money and in/out -of -the-money swaption volatilies. The continuous part is based on a semidefinite programming (convex) problem, with constraints in terms of variability or robustness, and the calibration of the Lévy measure is proposed to calibrate inverting the Fourier Transform.

Keywords: Calibration; Lévy; Market; model; Semidefinite; programming (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:ws085619

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