Any ideas about new trends in interest rate exotics? I see interest in spread cancelable options, for example, which seem to require two factor models. Please, refer to products from the market, not just academic ideas.

Luigi - what are spread cancellable options: sounds like some sort of Bermudan callability on a yield curve spread option ? ... is that correct ?

Yes, we do a few of these products. One variant is a callable spread accrual note. In note form the investor gets say a fixed rate that only accrues on days (months) where the defined spread is within a limit; for example the €15y swap rate minus the €2y swap rate is more than say 0.00% (to bet against the curve inverting). Making these callable adds a bit of extra complexity, but from a swap perspective tends to reduce the risk so people are happier to put a price on it (although apparently this often is relatively subjective).In modelling / pricing terms, the most important thing is the correlation between the rates. Most traders tend to take very conservative estimates of this, say >95%. You need at least a 3 factor model, but it is quite easily priced in a Libor market model environment.

Yes,bm, that is exactly what we have been asked for.QuoteMost traders tend to take very conservative estimates of this, say >95%. What do you mean here? If historical correlation is 50% now and the minimun is, say, 20%, what should you use? By the way, assume that you are better off using a lower correlation.In the correlation products that I have seen in the market, the correlation spread is very high, for example, 0%-30%.

Hello eveyone,I am seeking a paper about how to pricing a cancelable swaps (Note it can be canceled at any time after a specific date.)Any suggestions will be welcome.

Hi BM,why is it a 3 factor model ? short rate + long rate + in range accrual ?Is that correct ?Regarding pricing, is it using LS algorithm ? If yes, what basis fct. to choose ?FOr trading, what are the risk factors to watch out ? (e..g long vol, short corr. .. etc.) How to get a distribution for the correlation where I can get a 95% Confidenct interval ?THanks mate,Mr. M.....>>Yes, we do a few of these products. One variant is a callable spread accrual note. In note form the investor gets say a fixed rate that only >>accrues on days (months) where the defined spread is within a limit; for example the €15y swap rate minus the €2y swap rate is more >>than say 0.00% (to bet against the curve inverting). >>Making these callable adds a bit of extra complexity, but from a swap perspective tends to reduce the risk so people are happier to put a >>price on it (although apparently this often is relatively subjective).>>In modelling / pricing terms, the most important thing is the correlation between the rates. Most traders tend to take very conservative >>estimates of this, say >95%. You need at least a 3 factor model, but it is quite easily priced in a Libor market model environment.

any more new products ?

Definitley,1) weekly& strong CMS linked path dependent callable structures .......2) hybrid FX/Credit...

QuoteOriginally posted by: bmYes, we do a few of these products. One variant is a callable spread accrual note. In note form the investor gets say a fixed rate that only accrues on days (months) where the defined spread is within a limit; for example the €15y swap rate minus the €2y swap rate is more than say 0.00% (to bet against the curve inverting). Making these callable adds a bit of extra complexity, but from a swap perspective tends to reduce the risk so people are happier to put a price on it (although apparently this often is relatively subjective).In modelling / pricing terms, the most important thing is the correlation between the rates. Most traders tend to take very conservative estimates of this, say >95%. You need at least a 3 factor model, but it is quite easily priced in a Libor market model environment.Why is it easily priced in a libor market model environment? If it is multi-callable, wouldn't it result in nested Monte-Carlo because at every date for which early exercise is permitted one must compare the value of holding or exercise. This requires the valuation of a range accrual conditonal upon the path generated upto that time. Wouldn't it be extremely slow to perform nested Monte-Carlo?

BM, what model to use to price spread digital option embedded in the accrual product? What're the hedging assumptions?

QuoteOriginally posted by: ValDefinitley,1) weekly& strong CMS linked path dependent callable structures .......2) hybrid FX/Credit...what are hybrids FX/ credit? any example?

QuoteOriginally posted by: ValDefinitley,1) weekly& strong CMS linked path dependent callable structures .......2) hybrid FX/Credit...VAl, are you woring on this kinda stuffs ?

QuoteOriginally posted by: quantstudent19QuoteOriginally posted by: ValDefinitley,1) weekly& strong CMS linked path dependent callable structures .......2) hybrid FX/Credit...what are hybrids FX/ credit? any example?Take a look at Structured Products and Hybrid Securities (Frontiers in Finance S.) Satyajit Das

This book comes often as I can notice About new trend, would you say that Inflation limked products are the main area of research and sales ?