Calibration of Multicurrency LIBOR Market Models

Kay Pilz and Erik Schlogl

No 286, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper presents a methodf or calibrating a multi currency lognormal LIBOR Market Model to market data of at-the-money caps, swaptions and FX options. By exploiting the fact that multivariate normal distributions are invariant under orthonormal transformations, the calibration problem is decomposed into manageable stages, while maintaining the ability to achieve realistic correlation structures between all modelled market variables.

Keywords: currency options; LIBOR market model; exchange rate risk; interest rate risk (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-12-01
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:uts:rpaper:286

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