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A stochastic volatility libor model and its robust calibration

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

Abstract

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

Suggested Citation

  • Belomestny, Denis & Matthew, Stanley & Schoenmakers, John G. M., 2007. "A stochastic volatility libor model and its robust calibration," SFB 649 Discussion Papers 2007-067, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2007-067
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    References listed on IDEAS

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    6. Denis Belomestny & John Schoenmakers, 2010. "A jump-diffusion Libor model and its robust calibration," Quantitative Finance, Taylor & Francis Journals, vol. 11(4), pages 529-546.
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    More about this item

    Keywords

    Libor modelling; stochastic volatility; CIR processes; calibration;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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    This paper has been announced in the following NEP Reports:

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