Article ID Journal Published Year Pages File Type
978291 Physica A: Statistical Mechanics and its Applications 2007 19 Pages PDF
Abstract

We investigate LIBOR-based derivatives using a parsimonious field theory interest rate model capable of instilling imperfect correlation between different maturities. Delta and Gamma hedge parameters are derived for LIBOR caps against fluctuations in underlying forward rates. An empirical illustration of our methodology is conducted to demonstrate the influence of correlation on the hedging of interest rate risk.

Related Topics
Physical Sciences and Engineering Mathematics Mathematical Physics
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