INTEREST RATE MODELLING - Risk Waters Group

E MODELLINGmentation techniquesDAY TWONew York, Friday 1 June 20018.00 Registration and breakfast8.30EQUIVALENT VOLATILITY FORMULAS FORLOCAL VOLATILITY AND STOCHASTICVOLATILITY MODELSVolatility smiles and skews● Incorporating volatility smiles and skews into theinterest rate model- the limitations of the CEV model- the lognormal distribution- the inclusion of stochastic volatilities- skew and kurtosis● Using local volatility and stochastic volatility modelsto match market smiles/skews● Dynamics of the smile and hedge stability● Managing smile risk via stochastic volatility models● Dynamics of the smile implied by local volatility andstochastic volatility models● Using stochastic volatility models to manage smileriskPatrick Hagan, Head of Quantitative ResearchNOMURA SECURITIES INTERNATIONAL10.00 Morning break● Difficulties in the implementation of multi-factorBGM Libor models● Non-Markovian and multi-factor coupled with therequirement of accuracy, convergence, andcomputation speed● Practical example: Efficient numericalimplementation of multi-factor BGM Libor modelwith the non-exploding bushy tree technique● Introduction to the non-exploding bushy treetechnique which overcomes various difficulties of theconventional bushy tree technique● Efficient and consistent pricing of caps/floors,European and Bermudan swaptions with a 3-factorBGM Libor model implemented by thenon-exploding bushy tree technique● Example on efficient modelling of caplet andswaption volatility skews with a 3-factor BGM LibormodelYi Tang, Vice President in Quantitative Group (DCP)GOLDMAN SACHS & CO.ORKThere will be a 30 minute break during this session17.00 End of course10.30STOCHASTIC VOLATILITY OR JUMP MODELS:A PRACTICAL APPROACH● Stochastic BGM models● Using autocalibration to manage the smile risk ofexotic dealsPatrick Hagan, Head of Quantitative ResearchNOMURA SECURITIES INTERNATIONAL12.30 Lunch13.30IMPLEMENTATION OF MULTI-FACTOR BGMLIBOR MODEL● In-depth analysis of multi-factor BGM Libor models● Martingale approach for modelling● Spot, forward, and annuity arbitrage-free measures● General forms of BGM Libor market model andswap market model● General forms of volatility and correlation structures● Modelling caplet and swaption volatility skewsRisk's ExclusivePre-course Reading:Produced in consultation with thecourse tutors, every delegate willreceive a comprehensivepre-course reading pack to ensurethey obtain maximum benefit fromthe course. Each article has beenselected based upon its relevanceto the topics covered within thepresentations.www.risktraining.com/interest