Generic Market Models

Raoul Pietersz () and Marcel van Regenmortel
Additional contact information
Marcel van Regenmortel: ABN AMRO Bank

Finance from EconWPA

Abstract: Currently, there are two market models for valuation and risk management of interest rate derivatives, the LIBOR and swap market models. In this paper, we introduce arbitrage-free constant maturity swap (CMS) market models and generic market models featuring forward rates that span periods other than the classical LIBOR and swap periods. We develop generic expressions for the drift terms occurring in the stochastic differential equation driving the forward rates under a single pricing measure. The generic market model is particularly apt for pricing of Bermudan CMS swaptions, fixed-maturity Bermudan swaptions, and callable hybrid coupon swaps.

Keywords: market model; generic market models; generic drift terms; hybrid products; BGM model (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-rmg
Date: 2005-02-11
Note: Type of Document - pdf; pages: 25
View list of references View citations in EconPapers

Downloads: (external link)
http://129.3.20.41/eps/fin/papers/0502/0502009.pdf (application/pdf)

Related works:
Working Paper: Generic Market Models (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0502009

Access Statistics for this paper

More papers in Finance from EconWPA
Series data maintained by EconWPA ().