Efficient pricing and Greeks in the cross-currency LIBOR market model

Chris J. Beveridge and Mark S. Joshi and Will M. Wright

Journal of Risk

Abstract: ABSTRACT We discuss the issues involved in an efficient computation of the price and sensitivities of Bermudan exotic interest rate derivatives in the cross-currency displaced diffusion LIBOR market model. Improvements recently developed for an efficient implementation of the displaced diffusion LIBOR market model are extended to the cross-currency setting, including the adjoint-improved pathwise method for computing sensitivities and techniques used to handle Bermudan optionality. To demonstrate the application of this work, we provide extensive numerical results on two commonly traded cross-currency exotic interest rate derivatives: crosscurrency swaps and power reverse dual currency swaps.

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