Purpose -The paper aims to propose a consistent and robust pricing/hedging methodology for callable fixed income structures with embedded caplet-linked options. Design/methodology/approach - A range of recently published (1997-2003) works about the Libor Market Model (LMM) tackle the problems of...

Purpose – The paper aims to propose a consistent and robust pricing/hedging methodology for callable fixed income structures with embedded caplet‐linked options. Design/methodology/approach – A range of recently published (1997‐2003) works about the Libor Market Model (LMM) tackle the...