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Study and Calibration of a LIBOR Forward Swap Model with Stochastic Volatility

Master's Thesis
Corporate Partner: 
Swiss Life
Date Published: 
June 4, 2013

This thesis extends the LIBOR market model of Wu and Zhang. This model separates the forward rate volatility into a deterministic factor, specific to each forward rate, and a stochastic term common to all rates. Since the stochastic term has a structure similar to the volatility process in the Heston model, following a similar approach a semi-analytical pricing formula for Caplets and Swaptions is obtained.