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Forward rate volatilities, swap rate volatilities, and the implementation of the LIBOR market model, Hull, J. C., & White, A. (2000). Forward rate volatilities, swap rate volatilities, and the implementation of the LIBOR market model. This paper presents a number of new ideas concerned with the implementation of the LIBOR market model and its extensions. It develops and tests an analytic approximation for calculating the volatilities used by the market to price European swap options fromthe volatilities used to price interest rate caps.
Arbitrage-free discretization of lognormal forward Libor and swap rate models, Glasserman, P., & Zhao, X. (2000). Arbitrage-free discretization of lognormal forward Libor and swap rate models. Finance and stochastics, 4(1), 35-68. This paper explores the emergence of models that incorporate lognormal volatilities for forward Libor or forward swap rates while keeping interest rates stable. The authors introduce methods for discretizing these models giving particular attention to precluding arbitrage among bonds and to keeping interest rates positive even after discretization.
LIBOR and swap market models and measures, Jamshidian, F. (1997). LIBOR and swap market models and measures. Finance and Stochastics, 1(4), 293-330. Contained in this paper is a theory presented for pricing and hedging LIBOR and swap derivatives by arbitrage.
The Co‐initial Swap Market Model, Galluccio, S., & Hunter, C. (2004). The Co‐initial Swap Market Model. Economic notes, 33(2), 209-232. In this paper, the authors introduce a novel approach to the pricing and the risk management of generic European style interest‐rate derivatives. Model implementation and calibration are discussed, and details of two example applications are also presented.
Models of forward Libor and swap rates, Rutkowski, M. (1999). Models of forward Libor and swap rates. Applied Mathematical Finance, 6(1), 29-60. This paper explores the backward induction approach used to produce various models of forward market rates. The valuation formulae for European caps and swaptions are given. In the last section, the Eurodollar futures contracts and options are examined within the framework of the lognormal model of forward Libor rates.
Forward swaps, swap options, and the management of callable debt, Brown, K. C., & Smith, D. J. (1990). Forward swaps, swap options, and the management of callable debt. Journal of Applied Corporate Finance, 2(4), 59-71.
Swap rate variance swaps, Merener, N. (2012). Swap rate variance swaps. Quantitative Finance, 12(2), 249-261. In this research, the authors study the hedging and valuation of generalized variance swaps defined on a forward swap interest rate.
Computing deltas of callable LIBOR exotics in forward LIBOR models, Piterbarg, V. (2003). Computing deltas of callable LIBOR exotics in forward LIBOR models. This paper analyses different models of callable Libor, their functions, vulnerabilities and computing risks. The authors propose a method which is said to save computational effort by computing all deltas at once in the same simulation in which the value is computed. More details are documented.
A multicurrency extension of the lognormal interest rate market models, Schlögl, E. (2002). A multicurrency extension of the lognormal interest rate market models. Finance and Stochastics, 6(2), 173-196.
The impact of collateralization on swap rates, Johannes, M., & Sundaresan, S. (2007). The impact of collateralization on swap rates. The Journal of Finance, 62(1), 383-410. This paper analyses the traditional view of interest rate swap pricing theory on swaps as a portfolio of forward contracts with net swap payments discounted at LIBOR rates.In this paper, the authors provide a swap valuation theory under marking‐to‐market and costly collateral and examine the theory’s empirical implications.
A practitioner’s guide to pricing and hedging callable LIBOR exotics in forward LIBOR models, Piterbarg, V. (2003). A practitioner’s guide to pricing and hedging callable LIBOR exotics in forward LIBOR models. Preprint. This paper is a guide in Callable Libor exotics. It provides a comprehensive overview of calibration, pricing and Greeks calculation techniques for callable Libor exotics in forward Libor models. Many technical results and practical methods presented in the paper are original. In addition, strategies for calibrating forward Libor models for callable Libor exotics are discussed at length.