Showing papers by "Danske Bank published in 2006"
TL;DR: This paper developed a systematic approach to Markovian projection onto an effective displaced diffusion, and work out a set of computationally efficient formulas valid for a large class of non-Markovian underlying processes.
Abstract: We develop a systematic approach to Markovian projection onto an effective displaced diffusion, and work out a set of computationally efficient formulas valid for a large class of non-Markovian underlying processes. The generic derivation is followed by applications, including the calculation of FX options in cross-currency models and swaption pricing in LIBOR Market Models, where we are able to recover in an unambiguous way many known analytical approximations and derive several new ones.
25 citations
TL;DR: In this paper, the authors consider the problem of computing reservation prices of options in the model proposed in a companion paper by Damgaard [2003] and show that the value functions of the associated portfolio maximization problems are unique viscosity solutions of their respective Hamilton-Jacobi-Bellman equations.
20 citations
TL;DR: In this paper, the authors combine classical ideas of separable volatility structures in the HJM framework with the latest techniques for calibration of stochastic volatility models and create a new class of efficient multi-factor term structure models with Stochastic volatility.
Abstract: We combine classical ideas of separable volatility structures in the HJM framework with the latest techniques for calibration of stochastic volatility models and create a new class of efficient multi-factor term structure models with stochastic volatility. These models have the flexibility of as the Libor market models but the speed of the short rate models.
15 citations
TL;DR: The authors revisited the cross-currency LIBOR Market Model with the technique of Markovian projection and derived an efficient approximation for FX options and showed how the FX skew can be modeled consistently with the interest rate skew in a common multifactor model.
Abstract: We revisit the cross-currency LIBOR Market Model armed with the technique of Markovian projection. We derive an efficient approximation for FX options and show how the FX skew can be modeled consistently with the interest rate skew in a common multifactor model.
10 citations