{"product_id":"the-sabr-libor-market-model-pricing-calibration-and-hedging-for-complex-interest-rate-derivatives-hardback-9780470740057","title":"The SABR\/LIBOR Market Model; Pricing, Calibration and Hedging for Complex Interest-Rate Derivatives (Hardback) 9780470740057","description":"\u003cfont face=\"Georgia\"\u003e\r\n\u003cp\u003e\u003cfont size=\"6\"\u003eThe SABR\/LIBOR Market Model\u003c\/font\u003e\u003cbr\u003e\r\n\u003cfont size=\"5\"\u003ePricing, Calibration and Hedging for Complex Interest-Rate Derivatives\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\r\n\r\n\r\n\u003cp\u003e\u003cfont size=\"4\"\u003eRiccardo Rebonato (Author), Kenneth McKay (Author), Richard White (Author)\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\u003cp\u003e\u003cfont size=\"3\"\u003e9780470740057, Wiley\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\u003cp\u003e\u003cfont size=\"3\"\u003eHardback, published 6 March 2009\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\u003cp\u003e\u003cfont size=\"3\"\u003e304 pages\u003cbr\u003e25.2 x 17.7 x 2.2 cm, 0.662 kg\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\r\n\r\n\r\n\r\n\u003cp align=\"justify\"\u003e\u003cstrong\u003e\u003cfont size=\"3\"\u003eThis book presents a major innovation in the interest rate space. It explains a financially motivated extension of the LIBOR Market model which accurately reproduces the prices for plain vanilla hedging instruments (swaptions and caplets) of all strikes and maturities produced by the SABR model. The authors show how to accurately recover the whole of the SABR smile surface using their extension of the LIBOR market model. This is not just a new model, this is a new way of option pricing that takes into account the need to calibrate as accurately as possible to the plain vanilla reference hedging instruments and the need to obtain prices and hedges in reasonable time whilst reproducing a realistic future evolution of the smile surface. It removes the hard choice between accuracy and time because the framework that the authors provide reproduces today's market prices of plain vanilla options almost exactly and simultaneously gives a reasonable future evolution for the smile surface.\u003cbr\u003e \u003cbr\u003e The authors take the SABR model as the starting point for their extension of the LMM because it is a good model for European options. The problem, however with SABR is that it treats each European option in isolation and the processes for the various underlyings (forward and swap rates) do not talk to each other so it isn't obvious how to relate these processes into the dynamics of the whole yield curve. With this new model, the authors bring the dynamics of the various forward rates and stochastic volatilities under a single umbrella. To ensure the absence of arbitrage they derive drift adjustments to be applied to both the forward rates and their volatilities. When this is completed, complex derivatives that depend on the joint realisation of all relevant forward rates can now be priced.\u003cbr\u003e \u003cbr\u003e Contents\u003cbr\u003e THE THEORETICAL SET-UP\u003cbr\u003e The Libor Market model\u003cbr\u003e The SABR Model\u003cbr\u003e The LMM-SABR Model\u003cbr\u003e \u003cbr\u003e IMPLEMENTATION AND CALIBRATION\u003cbr\u003e Calibrating the LMM-SABR model to Market Caplet prices\u003cbr\u003e Calibrating the LMM\/SABR model to Market Swaption Prices\u003cbr\u003e Calibrating the Correlation Structure\u003cbr\u003e \u003cbr\u003e EMPIRICAL EVIDENCE\u003cbr\u003e The Empirical problem\u003cbr\u003e Estimating the volatility of the forward rates\u003cbr\u003e Estimating the correlation structure\u003cbr\u003e Estimating the volatility of the volatility\u003cbr\u003e \u003cbr\u003e HEDGING\u003cbr\u003e Hedging the Volatility Structure\u003cbr\u003e Hedging the Correlation Structure\u003cbr\u003e Hedging in conditions of market stress\u003c\/font\u003e\u003c\/strong\u003e\u003c\/p\u003e\r\n\r\n\u003cp\u003e\u003cfont size=\"3\"\u003e\u003cp\u003eAcknowledgements xi\u003c\/p\u003e \u003cp\u003e1 Introduction 1\u003c\/p\u003e \u003cp\u003e\u003cb\u003eI The Theoretical Set-Up 7\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e2 The LIBOR Market Model 9\u003c\/p\u003e \u003cp\u003e3 The SABR Model 25\u003c\/p\u003e \u003cp\u003e4 The LMM-SABR Model 51\u003c\/p\u003e \u003cp\u003e\u003cb\u003eII Implementation and Calibration 79\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e5 Calibrating the LMM-SABR Model to Market Caplet Prices 81\u003c\/p\u003e \u003cp\u003e6 Calibrating the LMM-SABR Model to Market Swaption Prices 101\u003c\/p\u003e \u003cp\u003e7 Calibrating the Correlation Structure 125\u003c\/p\u003e \u003cp\u003e\u003cb\u003eIII Empirical Evidence 141\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e8 The Empirical Problem 143\u003c\/p\u003e \u003cp\u003e9 Estimating the Volatility of the Forward Rates 159\u003c\/p\u003e \u003cp\u003e10 Estimating the Correlation Structure 181\u003c\/p\u003e \u003cp\u003e\u003cb\u003eIV Hedging 203\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e11 Various Types of Hedging 205\u003c\/p\u003e \u003cp\u003e12 Hedging against Moves in the Forward Rate and in the Volatility 221\u003c\/p\u003e \u003cp\u003e13 (LMM)-SABR Hedging in Practice: Evidence from Market Data 231\u003c\/p\u003e \u003cp\u003e14 Hedging the Correlation Structure 247\u003c\/p\u003e \u003cp\u003e15 Hedging in Conditions of Market Stress 257\u003c\/p\u003e \u003cp\u003eReferences 271\u003c\/p\u003e \u003cp\u003eIndex 275\u003c\/p\u003e\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\u003cp\u003e\u003cfont size=\"3\"\u003eSubject Areas: Finance \u0026amp; accounting [\u003ca title=\"See our other books on Finance \u0026amp; accounting\" href=\"https:\/\/freshlyprintedbooks.co.uk\/search?q=%22Finance%20\u0026amp;%20accounting%20%5BKF%5D%22\"\u003eKF\u003c\/a\u003e]\u003c\/font\u003e\u003c\/p\u003e\r\n\r\n\r\n\u003c\/font\u003e","brand":"Wiley","offers":[{"title":"Brand New","offer_id":52165883887896,"sku":"9780470740057","price":64.79,"currency_code":"GBP","in_stock":true}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/0730\/2037\/5320\/files\/9780470740057.jpg?v=1781101387","url":"https:\/\/freshlyprintedbooks.co.uk\/products\/the-sabr-libor-market-model-pricing-calibration-and-hedging-for-complex-interest-rate-derivatives-hardback-9780470740057","provider":"Freshly Printed Books","version":"1.0","type":"link"}