A Hybrid Markov-Functional Model with Simultaneous Calibration to Interest Rate and FX Smile

Fries, Christian P. und Eckstaedt, Fabian (2006): A Hybrid Markov-Functional Model with Simultaneous Calibration to Interest Rate and FX Smile. SSRN

Abstract

In this paper we present a Markov functional hybrid interest rate/fx model which allows the calibration of a given market volatility surface in both dimension simultaneously. We extend the approach introduced in [FriesRott] by introducing a functional for the FX which allows a fast, yet accurate calibration to a given market fx volatility surface. This calibration procedure comes as an additional step to the known calibration of the LIBOR functional.

• Dokumententyp: Paper
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 500 Naturwissenschaften und Mathematik > 510 Mathematik
• ISSN: 1556-5068
• Sprache: Englisch