hi!Maybe it's a silly question, but where are the world of interest rates models moving?What kind of research are involving this world ? or nowdays is the research more focused on the credit's spread and credit models?Thanks!

there is no research anymore

What do you refer?Do you think that all it's done?

You may optimize some code or improve numerical efficiency. Models are the same for the lat ten years: 80% is BGM in various versions, the rest are one or more factors short rate models, there are people who use Markov functional.

i respectfully disagree and would opine that BGM has been gathering a lot of dust in the quant toolboxes for the last couple of yearsshort rate models 1-3 factor are easier to use and just as good. and they are easier to calibrate to the smile.holy grail would be a market model with instant calibration to smiles in both rates and correlation space. and with (multiple) credit factors. and in multi-currency. and then it should also forecast the weather for the next 5 days.the research will never stop. ever.

Gmike do you know a name of a model or paper after BGM model?Almost all the books use to stop there and I didn't found many information available on internet.

you mean post-BGM models? i am not sure there are that many. In terms of theory, BGM captures it all nicely, you could see it as a "unified" model of the market. But in practice, BGM is often inadequate due to missing smile calibration or just simply because the quants made it so complicated that it is impossible to calibrate.so my impression is that most people reverted back to the old short rate models, but pimped them up with stochastic volatility.i am not sure how successfull bgm with smile in it would be...it all boils down to how easy it is to calibrate and how stable it can run (by itself) during the lifetime of a deal.

Ok!Thank you so much.

check the book "global derivatives: prodcuts, theory and practice" - post-bgm you get smile/skew extensions of either SR or BGM

Edwyn I'm looking more in research papers to know where is the actual work moving.But thanks for your help. I will look it.

We cover short-rate models (one- and multi-factor) with stochastic volatility, as well as quadratic short rate models (another way of getting the smile) in our upcoming book.Vladimir-------------------------------------------------------------------------------Get all the answers here: www.andersen-piterbarg-book.com

QuoteOriginally posted by: piterbargWe cover short-rate models (one- and multi-factor) with stochastic volatility, as well as quadratic short rate models (another way of getting the smile) in our upcoming book.Vladimir-------------------------------------------------------------------------------Get all the answers here: www.andersen-piterbarg-book.com And what do you thing that the new aprroach are going?

Good man, outrun!P

QuoteOriginally posted by: outrunWe work on proprietary stochastic non-linear dynamical short rate / curve models that model the dynamics of the curve system. These models generalize stochastic volatility models and are used to take statistical arbitrage positions in the forward derivative markets (instead of calibrate on them).So then all the work with affine models and interest rates modelling it's done or it take part to model stochastic non-linear dynamical short-rate?Any paper? any author of relevant interest about these news approach?