This paper investigates the effect of interest rate correlation in the pricing of Bermudan swaptions. Investigating both Gaussian Markov models and Libor Market models, we find that Bermudan swaption prices depend only weakly on the number of factors in the underlying interest rate model....

The standard approach (e.g. Dupire (1994) and Rubinstein (1994)) to fitting stock processes to observed option prices models the underlying stock price as a one-factor diffusion process with state- and time-dependent volatility. While this approach is attractive in the sense that market...

This paper considers the pricing of Bermuda-style swaptions in the Libor market model (Brace et al (1997), Jamshidian (1997), Miltersen et al (1997)) and its extensions (Andersen and Andreasen (1998)). Due to its large number of state variables, application of lattice methods to this model class...

This paper considers extensions of the Libor market model (Brace et al (1997), Jamshidian (1997), Miltersen et al (1997)) to markets with volatility skews in observable option prices. We expand the family of forward rate processes to include diffusions with non-linear forward rate dependence and...

In an influential series of papers, V. Piterbarg demonstrates how to perform time-averaging of parameters in a class of diffusion models with linear local volatility and orthogonal stochastic volatility. In this paper, we consider how to extend the applicability of parameter-averaging techniques...

While the idea of pricing options by Fourier methods has been around for more than two decades, the numerical evaluation of the necessary semi-infinite Fourier style integrals remains a challenging problem. Existing methods in the literature frequently lack robustness, and in practice often...

Many sophisticated option pricing models involve random variables whose probability density functions are only tractable in Fourier space. Moreover, popular choices for these variables often lead to numerical challenges, due to, for instance, singular densities or slowly decaying characteristic...