The Market Model of Interest Rate Dynamics
Alan Brace, Dariusz G¸atarek, Marek Musiela
Source record
Source: Crossref
Published: Apr 1, 1997
DOI: 10.1111/1467-9965.00028
Open original source ↗Source abstract
A class of term structure models with volatility of lognormal type is analyzed in the general HJM framework. The corresponding market forward rates do not explode, and are positive and mean reverting. Pricing of caps and floors is consistent with the Black formulas used in the market. Swaptions are priced with closed formulas that reduce (with an extra assumption) to exactly the Black swaption formulas when yield and volatility are flat. A two–factor version of the model is calibrated to the U.K. market price of caps and swaptions and to the historically estimated correlation between the forward rates.
Evidence graph
No public relationships recorded yet.
Integrity note: This page is a factual metadata record created by deterministic ingestion. It is not a claim that the work moves a mathematical frontier or has been independently verified.