This paper compares the pricing and hedging performance of the LMM model against two spot-rate models, namely Hull … contrast to previous studies in the literature, our emphasis here is on ALM and we use hedging performance on Bermudan … stable and their pricing errors are small and comparable. No single model dominates in the pricing exercise. The hedging …

particular, we compare the two models for pricing and hedging Bermudan swaptions because of its resemblance to prepayment option … the hedging performance show that the Black-Karasinski model is more effective in hedging the interest rate risk of the at …