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This event took place on 9th September 2020, so you won't be able to enquire. They may run the event again in the future. Contact the member by visiting their profile using the 'Member Profile' link above.

This talk shows how Markovian projection together with some clever parameter freezing can be used to reduce a full-edged local volatility interest rate model – such as Cheyette (1992) – to a ”minimal” form in which the swap rate evolves essentially like a dividend-paying stock. This talk will compare such a minimal “poor man’s” model to a full-edged Cheyette local volatility model and the market benchmark Hull-White onefactor model. Numerical tests demonstrate that the “poor man’s” model is in fact sufficient to price Bermudan interest rate swaptions. The main practical implication of this finding is that – once local volatility; dividend and short rate parameters are properly stripped from the volatility surface and interest rate curve – one can readily use the widely popular equity derivatives software for pricing exotic interest rate options such as Bermudans.


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