Dariusz Gatarek & Przemyslaw Bachert 
The LIBOR Market Model in Practice 

The LIBOR Market Model (LMM) is the first model of interest rates
dynamics consistent with the market practice of pricing interest
rate derivatives and therefore it is widely used by financial
institution for valuation of interest rate derivatives.

This book provides a full practitioner’s approach to the LIBOR
Market Model. It adopts the specific language of a quantitative
analyst to the largest possible level and is one of first books on
the subject written entirely by quants. The book is divided into
three parts – theory, calibration and simulation. New and important
issues are covered, such as various drift approximations, various
parametric and nonparametric calibrations, and the uncertain
volatility approach to smile modelling; a version of the HJM model
based on market observables and the duality between BGM and HJM
models. Co-authored by Dariusz Gatarek, the ‘G’ in the BGM model
who is internationally known for his work on LIBOR market models,
this book offers an essential perspective on the global benchmark
for short-term interest rates.

Table des matières

Acknowledgments.

About the Authors.

Introduction.

PART I: THEORY.

1 Mathematics in a Pill.

2 Heath-Jarrow-Morton and Brace-Gatarek-Musiela Models.

3 Simulation.

5 Smile Modelling in the BGM Model.

6 Simplified BGM and HJM Models.

PART II: CALIBRATION.

7 Calibration Algorithms to Caps and Floors.

8 Non-Parametric Calibration Algorithms to Caps and Swaptions.

9 Calibration Algorithms to Caps and Swaptions Based on Optimization Techniques.

PART III: SIMULATION.

10 Approximations of the BGM Model.

11 The One Factor LIBOR Markov Functional Model.

12 Optimal Stopping and Pricing of Bermudan Options.

13 Using the LSM Approach for Derivatives Valuation.

References.

Index.

A propos de l’auteur

PRZEMYSLAW BACHERT is a senior financial engineer in the
Global Financial Services Risk Management Group at Ernst and Young.
He holds his Ph.D. in economics from the University of Lodz. In his
work Przemyslaw is responsible for structure derivatives valuation
and implementation of risk management systems. He has spent the
last six years working with financial institutions in the Europe
and Middle East to enhance their risk management capabilities
including Algorithmics parameterization. Prior to joining Ernst and
Young, Przemyslaw was a financial analyst at Bank Handlowy in
Warsaw (Citigroup) where he was responsible for quantitative
maintenance of front office system Kondor+. He is also a teacher in
the Ernst and Young Academy of Business for the Financial
Engineering course which covers the LIBOR Market Model.

DARIUSZ GATAREK is Credit Risk Analyst at Glencore UK
Ltd. In addition he is a professor at the WSB-National Louis
University and the Polish Academy of Sciences. He joined Glencore
UK Ltd from Numeri X LLC, where he was Director of Research
specializing in interest rate derivatives pricing. Before he was
involved in valuing derivatives and designing risk management
systems for capital adequacy within the consultancy Deloitte and
Touche and several banks. Dariusz has published a number of papers
on financial models of which perhaps his work with Alan Brace and
Marek Musiela on Brace-Gatarek-Musiela (BGM) models of interest
rates dynamics is the most well-known. He is a frequent speaker at
conferences worldwide.

ROBERT MAKSYMIUK is a senior financial engineer in the
Global Financial Services Risk Management Group at Ernst and Young
where he is responsible for structured derivatives pricing and
implementation of risk management systems for the clients. As
consultant he has worked for several financial institutions in the
Europe and Middle – East and his activity covered
implementation Algo Suite risk management system. Prior to joining
Ernst and Young Robert work in BRE Bank where he worked together
with Dariusz Gatarek and he was engaged in quantitative research.
Additionaly Robert is a teacher in the Ernst and Young Academy of
Business for the Financial Engineering course which covers the
LIBOR Market Model.