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| UnRisk: Finance@Court |
| Andreas Binder |
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Municipalities would do well to analyze payoffs and the risk of swaps before taking a leap with taxpayers' money...
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| Low Strike Extrapolation for SABR - d-fine |
| Sebastian Schlenkrich, André Miemiec, Tilman Wolff-Siemssen, d-fine GmbH, Frankfurt, Germany |
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In this paper we analyse the modelling of rate options in a low interest rate market environment. In particular, the pricing of low, zero and negative strike vanilla options is considered. We review the modelling approaches available in the literature. For the important special case of the widely used SABR formula we illustrate the shortcomings connected with the low strike wing of the smile.
Moreover, a simple approach of low strike extrapolation will be presented. It is based on gluing the density function implied by the standard SABR formula to a suitable density function at low strikes in an arbitrage free manner. This approach yields a robust and transparent method to price low, zero and negative strike vanilla options.
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| Global Derivatives & Risk Management 2015 | 18-22 May, 2015. Hotel Okura, Amsterdam - 15% Wilmott Discount |
Global Derivatives & Risk Management 2015
18-22 May, 2015. Hotel Okura, Amsterdam
15% Discount for readers - VIP Code: FKN2428WILW
Global Derivatives brings together leading quants, traders, risk managers and academics from all over the world to discuss the key challenges affecting the derivatives market. Attending will enable you to:
Hear technical details of the latest research being done by leading financial minds
Learn cutting edge volatility, correlation, interest rate, FX, equities & credit modelling techniques
Discover practical solutions to the challenges you face & learn how to implement them when you get back in the office
Meet and learn from hundreds of senior derivatives professionals
Further information:
Telephone no.: +44 (0) 20 7017 7200
Email address: info@icbi.co.uk
Event URL: www.icbi-derivatives.com/FKN2428WILW
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