English, Article edition: AN EFFICIENT CALIBRATION METHOD FOR THE MULTI-FACTOR LIBOR MARKET MODEL AND ITS APPLICATION TO THE JAPANESE MARKET HIDETOSHI TANIMURA; YUJI YAMADA

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Bookmark: http://trove.nla.gov.au/version/83267
Physical Description
  • article
Language
  • English

Edition details

Title
  • AN EFFICIENT CALIBRATION METHOD FOR THE MULTI-FACTOR LIBOR MARKET MODEL AND ITS APPLICATION TO THE JAPANESE MARKET
Author
  • HIDETOSHI TANIMURA
  • YUJI YAMADA
Physical Description
  • article
Notes
  • In this paper an efficient calibration method for the multi-factor LIBOR Market Model (LMM) is proposed and is applied for the Japanese interest rate market. At first the joint calibration method in the cap and swaption market is demonstrated using a new parameterization for the correlation matrix in the LMM. Then we implement the proposed methodology for calibrating the Japanese cap and swaption markets, where the computational procedure is shown to be tractable and provides a practical estimation for the implied correlation matrix in the LMM. The empirical analysis also illustrates that Black's swaption volatilities through our calibration fit the market data almost exactly and that the estimated implied correlation matrix is smooth and stable.
  • LIBOR market model, parameter calibration, implied correlation matrix
  • RePEc:wsi:ijtafx:v:09:y:2006:i:07:p:1123-1139
Language
  • English
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