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SABR and SABR LIBOR Market Models in Practice

With Examples Implemented in Python

  • Authors
  • Christian Crispoldi
  • Gérald Wigger
  • Peter Larkin

Part of the Applied Quantitative Finance series book series (AQF)

Table of contents

  1. Front Matter
    Pages i-xxi
  2. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 1-4
  3. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 5-10
  4. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 11-28
  5. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 29-41
  6. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 42-118
  7. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 119-168
  8. Christian Crispoldi, Gérald Wigger, Peter Larkin
    Pages 169-202
  9. Back Matter
    Pages 203-216

About this book

Introduction


Interest rate traders have been using the SABR model to price vanilla products for more than a decade. However this model suffers however from a severe limitation: its inability to value exotic products. A term structure model à la LIBOR Market Model (LMM) is often employed to value these more complex derivatives, however the LMM is unable to capture the volatility smile. A joint SABR LIBOR Market Model is the natural evolution towards a consistent pricing of vanilla and exotic products. Knowledge of these models is essential to all aspiring interest rate quants, traders and risk managers, as well an understanding of their failings and alternatives.
SABR and SABR Libor Market Models in Practice is an accessible guide to modern interest rate modelling. Rather than covering an array of models which are seldom used in practice, it focuses on the SABR model, the market standard for vanilla products, the LIBOR Market Model, the most commonly used model for exotic products and the extended SABR LIBOR Market Model. The book takes a hands-on approach, demonstrating simply how to implement and work with these models in a market setting. It bridges the gap between the understanding of the models from a conceptual and mathematical perspective and the actual implementation by supplementing the interest rate theory with modelling specific, practical code examples written in Python.    

Keywords

derivatives evolution Monte Carlo Simulation Simulation volatility

Bibliographic information