P Glasserman and X Zhao, Arbitrage-Free Discretisation of Lognormal Forward Libor and Swap Rate Models, Columbia Univeristy Working Paper, http://www.gsb.columbia.edu/faculty/pglasserman/Other, February 1998.  Home/Search   Document Not in Database   Summary   Related Articles

....strongly on the correlations between rates on the term structure of interest rates. Pricing pathdependent derivatives with neither Bermudan nor American decision features, MonteCarlo simulation is an easy solution to the problem. A discussion of simulation techniques for this model is given in [GZ98]. In the major European interest market, Bermudan swaptions are heavily traded. It is therefore important for the practical importance of the LM model, that derivatives with Bermudan decision features can be dealt with correctly. Since the model is Markovian in the entire term structure and ....

....as a recursion relation v # ij = v # i,j 1 # j f ij 1 # j f ij # ij (16) 4 We change the # notation to # j to indicate explicit dependence on day count conventions, non business adjustments, etc. Bermudan Swaptions in the LIBOR Market Model 7 is a very e#cient way of generating v # . [GZ98] demonstrates that this log Euler simulation scheme has an inherent bias on zero coupon prices. They provide alternative simulation schema that are free of this bias problem. In practice these biases are very small, and for the purpose of this paper we accept this. We are also aware that no ....

P Glasserman and X Zhao, Arbitrage-Free Discretisation of Lognormal Forward Libor and Swap Rate Models, Columbia Univeristy Working Paper, http://www.gsb.columbia.edu/faculty/pglasserman/Other, February 1998.

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