An Asymptotic FX Option Formula in the Cross Currency Libor Market Model: Wilmott Magazine Article – Atsushi Kawai & Peter Jäckel

In this article, we introduce analytic approximation formulae for FX options in the Libor market model (LMM). The method to derive the formulae is an asymptotic expansion technique introduced in Kawai [Kaw03].

We first apply the method to the lognormal LMM and lognormal FX model. Then, the method is applied to the displaced diffusion LMM and the displaced diffusion FX model. Some numerical examples show that the derived formulae are sufficiently accurate for practical applications.

Logged-in members can download the article by clicking the link below. To log in or register visit here.

Related Posts

Six Degrees of Idiocy One of the classic works of poker, and risk management, is Herbert Yardley’s 1957 best-seller, The Education of a Poker Player, Including Where an...
Monte Carlo Methods in Quantitative Finance Generi... We describe how we have designed and implemented a software architecture in C++ to model one-factor and multifactor option pricing problems. We pa...
A Case Study on Asset Allocation in a Markowitz Wo... With a global wealth of 256 trillion USD in 2016  and with an ongoing regime of extremely low interest rates, the task of efficient asset allocati...
Derivatives Technology as a Matter of Survival How can banks survive the upcoming years? The traditional business model no longer works because: 1. Low/negative interest rates: Interest rate...
Opscore Web Service Two decades in the market have seen ITO33 firmly establish itself as the solution provider of choice for convertible bond specialists. This gold s...
American π: Piece of Cake? An American option can be exercised by its holder at any time he wishes, not just at the expiration date. Textbooks tell you that pricing it in the co...
Primer On Arbitrage And Asset Pricing: Wilmott Mag... Back to first principles… Leonard MacLean and Bill Ziemba Financial decision making is typically concerned with the amount of investment capital ...
Close Encounters Of The Third Order: Wilmott Magaz... Implied volatility approximations atop the Devil's Tower - Mike Staunton The 1977 science fiction movie Close Encounters of the Third Kind was writ...
130515_jackel