<t>QuoteOriginally posted by: PatA. Unfortunately, how well a model is implemented is often more important than which modelI agree. And the problem with BGM is that there are too many publication some of them misleading.QuoteOriginally posted by: PatB. If I'm pricing a spread option (say, 10y-2y), b...

<t>QuoteOriginally posted by: PatAnd let me re-iterate: my work in implementing the LMM type models (and variants) did pay for itself many times over, but NOT in princing/managing exoticsSo, I would state the opposite - ONLY full yield models as BGM or HJM can correctly price stuff like callable CMS...

Probably yes. But I still see no reason in using short rate models. Some versions of BGM and HJM (Hagan single factor HJM is No 1!) and you may price everything

<t>QuoteOriginally posted by: PatDariusz: The original selling point about the LMM is that they were trivial to calibrate. But not to swaptions; even using Jamshidean's approximations (and their descendants) LMM models are not easy to calibrate precisely to swaptions. And if I'm pricing a callable e...

<t>QuoteOriginally posted by: elanQuoteOriginally posted by: Dariusz but also a commercial product.The model is not a commercial product. An implementation may be, if stated so.Quote I know one BGM implementation (not mine!) with 70 factors and reasonable time of calculations.A seventy factor term s...

<t>QuoteOriginally posted by: PatWhy are we using BGM to price exotics?A) It is difficult to calibrate stably (so calibration only changes as much as it needs to each day)B) It is difficult to migrate the vega risks to the natural hedging instruments (so the hedges are as stable as possible each day...