Pricing Hybrid Derivatives in the LIBOR Market Model
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Pricing Hybrid Derivatives in the LIBOR Market Model
description
Pricing Hybrid Derivatives in the LIBOR Market Model. Hybrid Derivatives. PRDC (Power Reverse Dual Currency) Nikkei 225 Linked Multi-Callable Maturity 20-30 years. Risks in Hybrid derivatives. Volatility skew/smile of underlying Correlation between underlying and interest rates. - PowerPoint PPT Presentation
Transcript of Pricing Hybrid Derivatives in the LIBOR Market Model
Pricing Hybrid Derivatives in the LIBOR Market Model
Hybrid Derivatives
PRDC (Power Reverse Dual Currency)
Nikkei 225 Linked Multi-Callable
Maturity 20-30 years
Risks in Hybrid derivatives
• Volatility skew/smile of underlying
• Correlation between underlying and interest rates
Hybrid LIBOR Market Model
• Spot FX rate
• Domestic Forward LIBOR Rates
Hybrid LIBOR Market Model
• Foreign forward LIBOR rates
FX Option Price
• Forward FX Rate
• FX Call Option Price
Asymptotic Expansion Method
• Simple example
• Taylor’s series expansion
Asymptotic FX Option Formula
• Forward FX rate
• Domestic forward LIBOR rates
• Foreign forward LIBOR rates
• Third order asymptotic expansion of forward FX rate