A stochastic volatility libor model and its robust calibration

Denis Belomestny, Stanley Matthew and John G. M. Schoenmakers

No 2007-067, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: In this paper we propose a Libor model with a high-dimensional specially structured system of driving CIR volatility processes. A stable calibration prodecure which takes into account a given local correlation structure is presented. The calibration algorithm is FFT based, so fast and easy to implement.

Keywords: Libor modelling; stochastic volatility; CIR processes; calibration (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2007
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