Hi - SABR (forward interest rate) model, cannot model the joint evolution of forward rates, as it should take their correlation into account as well as evolving them under a single measure. To take those two requirements into account you need to resort to SABR-Libor Market Model. The industry uses S...

<t>The issue is in fact already present when working with only caplets. Especially in the SABR LMM, under particular assumptions, this parametrization doesn't work. An alternative method is described in this upcoming book (tests done in particular challenging market conditions are showed). The metho...

could you please clarify why a time homog. vol function generates a poor calibration? do you mean that you are not able to actually recover the market vols because the Rebonato function is not able to fit every possible shapes seen in the market? EDIT: rephrased question

Thank you all! Your comments have been very helpful.

<t>Hi All,Let's suppose I have a SV LMM, which I use to price the a product dependent on multiple forward rates. Let's also say that I am able to have an excellent calibration to the caplet vol surface. I can check this by running my MC in the appropriate measures - i.e. if I run my simulation in th...

As soon as I get the latest Palgrave catalog I'll tell you the exaxct title, authors and issue date.

<t>There is an upcoming book, published by Palgrave Macmillan, which contains a MC implementation code for SABR LMM (together with other code snippets to be used for calibration etc.). It does not address exactly your problem as a 0 fwd-vol correlation set up has been used throughout the book (for o...

Sorry for asking, but If your underlying swap is fixed to fixed, what is the option random underlying asset?

I've not experience with BB interpolation but I was wondering if you've tried to use SABR to fit the whole surface.

Super! Thank you for the reference.

<t>Dear Wilmotters,Just talked to a friend which told me that ICAP will start prividing Cap/Floor IVs backed out from a DD Black Model. I did some research on the internet but I couldn't find any news about this...I was expecting ICAP to release some press communications (at least on their web site)...

What's the problem with the 4 curves approach?

Thank you all for the detailed explanations and the references!

<t>Dear Wilmotters, I've been reading Bianchetti's paper 'Two Curves, One Price' together with many posts related to this topic. It seems that many institution have actually started using two distinct curves (since few years already), one for discounting and several ones to compute their forwards (d...

<t>QuoteOriginally posted by: AlanQuoteOriginally posted by: japanstarHi Alan,Sorry for the probably banal question: would you mind showing how you arrived atC(sigma + d sigma) - 2 C(sigma) + C(sigma - d sigma) from d^2 C/ d sigma^2 ?Thank you very much!Ps: it is really great to have someone like yo...