BGM Models and Advances: Basis, CSA, Credit & Funding
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Teacher Massimo Morini connects all the scattered information together pleasantly. It will lessen the time altogether to truly comprehend everything bit by bit.
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LFS courses will not baffle those searching for cutting edge specialized quantitative finance study material, conveyed in an organized and logically thorough way. Their solid point is an attention on handy applications, including prepared to utilize coding.
← | →
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Massimo demonstrates noteworthy information and enthusiasm towards the points he is exhibiting. His vitality and care in clarifying complex hypothesis remains always high from the first to the last moment of the day.
← | →
Short course
In London
Description
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Type
Short course
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Location
London
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Duration
3 Days
The BGM Libor and Swap Market Models are the last generation of financial models for interest rate derivatives, and those that cope more easily with the new market characterised by large basis spreads and CSA discounting or funding and CVA adjustments.
Discover new developments and cutting edge techniques in Libor and Swap Market Models. This in depth course reviews foundations and illustrates the latest advances, including lessons learnt from the financial crisis. This will give participants the opportunity to apply new methodologies in a practical context for the current needs of the market.
The course analyses techniques and structures for crucial points such as volatility and correlation modelling, with stochastic volatility, accurate SABR smile and a multicurve structure. It further investigates calibration techniques on market data, presents problematic scenarios and identifies appropriate solutions. The various pricing problems with real world payoffs are examined and practical solutions are described. Finally, how to deal with credit and liquidity risk in this framework is explained.
This course is also available remotely via LFS Live.
Facilities
Location
Start date
Start date
About this course
Exotic Products Managers (pricing strategy development)
Quantitative Analysts
QA Managers
Fixed Income Managers
Interest Rate Derivatives Managers & Teams
Managers of Financial Engineering
Portfolio Managers
Traders
Risk Managers or Directors
The Black Scholes Model and Formula and the foundations of derivatives pricing. Basic statistics and numerical methods (Monte Carlo). Matlab will be used but prior knowledge is not essential.
Reviews
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Teacher Massimo Morini connects all the scattered information together pleasantly. It will lessen the time altogether to truly comprehend everything bit by bit.
← | →
-
LFS courses will not baffle those searching for cutting edge specialized quantitative finance study material, conveyed in an organized and logically thorough way. Their solid point is an attention on handy applications, including prepared to utilize coding.
← | →
-
Massimo demonstrates noteworthy information and enthusiasm towards the points he is exhibiting. His vitality and care in clarifying complex hypothesis remains always high from the first to the last moment of the day.
← | →
Course rating
Recommended
Centre rating
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This centre's achievements
All courses are up to date
The average rating is higher than 3.7
More than 50 reviews in the last 12 months
This centre has featured on Emagister for 16 years
Subjects
- Market
- Calibration
- Credit
- Derivatives
- Financial Training
- IT risk
- Risk
- Testing
- BGM
- CSA
- OIS
- Libor Market Model
- SABR
- Multicurve
- Interest Rate derivatives
- HJM
Teachers and trainers (1)
Massimo Morini
Teacher
Dr Morini is currently Head of Interest Rates, Credit and Inflation Models at Banca IMI Intesa San Paolo (where he is also responsible for coordinating Model Research). He is a Professor of fixed income at Bocconi University and was Research Fellow at Cass Business School of London City University. He holds a PhD in Mathematics and regularly delivers advanced training on credit modelling, interest rate market models, correlation modelling and model risk. His papers appeared on journals including Risk Magazine, Mathematical Finance, the Journal of Derivatives and Applied Mathematical Finance.
Course programme
- Foundations and the new markets
- The interest rate market and the foundations of modelling
- What has changed in the market with the crisis. Libor, OIS, the basis. Collateral agreements. The new relations among market quotes
- Practical advantages and shortcomings of different modelling approaches in the new market. Short rate modelling, HJM, Libor and Swap Market Models (BGM)
- Understanding Market Models: from market Black formulas to the Libor Market Model
- From the basic Libor Market Model to a Dual Libor Market Model with CSA discounting
Volatility and the cap market
- Parameterising the model: the choice of the Volatility Structure. Future evolution and implications on pricing and stability. The evolution of the Term Structure of Volatility during the Financial Crisis
- Calibrating different volatility structures to cap quotes. The relation between volatilities for different tenors (i.e three month, six month, one year)
Volatilities, correlations and the swaption market
- Correlation Modelling: Desirable properties, Historical Estimations, Parametric Forms for today’s decorrelation
- Controlling Model Dimension. The number of factors
- Establishing a one to one relationship between parameters and market quotations for precise volatility bucketing
- Calibrating exactly and instantaneously to swaptions. Analysis of calibration market cases. Diagnostics of Calibration: controlling realism, stability and consistency of the results. Joint Calibration. Possible inconsistencies between cap and swaption markets
More Analytics and Numerics for the BGM
- Accurate approximations for efficient calibration to swaptions. Testing the approximations on crisis stressed data
- Monte Carlo Pricing in the LMM: from Log Euler to Milstein to Predictor Corrector schemes
- Efficiency, Variance Reduction and Control Variates
Workshop: Volatility and correlation structures
Day Two
Smile, SABR and today “exotics”
- Different ingredients for smile modelling. Local stochastic. The Local volatility skew backbone of stochastic volatility model. The issue of the smile dynamics for Local volatility, uncertain volatility, Stochastic volatility
- SABR model. The precision of the approximation. SABR in a multicurve context. Dynamic behaviour of smile and hedging issues. Arbitrage issues. How to solve the calibration problem
- Convexity adjustments and freezing drifts in Libor Market Model. Application to CMS derivatives. Analysis and comparison in different market situations. The problems of standard approximations with an anomalous shape of the term structure and the changes in volatility and correlation
Stochastic volatility in the Libor Market Model
- Heston stochastic volatility Libor Model. Different choices for parameterisations. Empirical testing of Heston stochastic volatility Libor Model in practice. How to perform the calibration. Nested calibrations. Model diagnostics. Evolution of volatility term structure in case of stochastic volatility. The future smile
- An arbitrage free term structure market model for Libor exotics with SABR dynamics. Calibration, approximations, empirical testing on market prices. Modelling correlation of rates with stochastic volatility
- Comparing Heston volatility vs SABR volatility in Libor Market Model
Pricing Bermudans in practice
- LS Monte Carlo for Bermudans. Parameterising exercise boundary. Choice of explanatory variables. Sensitivities
- Dealing with exotic callable interest rate products. Calibration and model adjustments. Efficiency issues and sensitivities
- Comparing the pricing of Bermudans with different models. The role of correlations
Workshop: CMS and Bermudans
Day Three
Latest advances and Multicurve Modelling
- Something more on efficient sensitivities in the Libor Market Model. Pathwise greeks. Computing global and bucketed delta and vega. Some more numerical tricks
- A fully multicurve Libor Market Model with stochastic volatility and stochastic basis. Parameterisation and calibration issues
- Other modelling approaches for pricing derivatives with multicurves. Short rate models and the Hull&White and CIR dual curve models. HJM and the tractable solutions for modelling a stochastic basis. Modelling the credit factor in these frameworks
Credit and Funding in Pricing Interest Rate derivatives
- A hint at Standard CSA and the pricing of cross currency interest rate derivatives in the current market
- Understanding the post crisis market: heterogeneous and volatile credit and funding risk. Explaining and modelling the anomalies in interest rate products. The effect of credit risk on Libor and on the basis. A new structural foundation for interest rate modelling
- Computing the funding cost. Funding charge and its interactions with credit charge. Different funding strategies and different shapes for funding charge
BGM Models and Advances: Basis, CSA, Credit & Funding