WIAS Preprint No. 1276, (2007)

A stochastic volatility Libor model and its robust calibration



Authors

  • Belomestny, Denis
  • Mathew, Stanley
  • Schoenmakers, John G. M.

2010 Mathematics Subject Classification

  • 60G51 62G20 60H05 60H10 90A09 91B28

Keywords

  • Libor modelling, stochastic volatility, CIR processes, calibration

Abstract

In this paper we propose a Libor model with a high-dimensional specially structured system of driving CIR volatility processes. A stable calibration procedure which takes into account a given local correlation structure is presented. The calibration algorithm is FFT based, so fast and easy to implement.

Appeared in

  • Monte Carlo Methods Appl., 15 (2009) pp. 285-310 as "Multiple stochastic volatility extension of the Libor market model and its implementation".

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