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Pricing Hybrid Derivatives in the LIBOR Market Model

Pricing Hybrid Derivatives in the LIBOR Market Model. Hybrid Derivatives. PRDC (Power Reverse Dual Currency) Nikkei 225 Linked Multi-Callable Maturity 20-30 years. Risks in Hybrid derivatives. Volatility skew/smile of underlying Correlation between underlying and interest rates.

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Pricing Hybrid Derivatives in the LIBOR Market Model

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  1. Pricing Hybrid Derivatives in the LIBOR Market Model

  2. Hybrid Derivatives • PRDC (Power Reverse Dual Currency) • Nikkei 225 Linked Multi-Callable Maturity 20-30 years

  3. Risks in Hybrid derivatives • Volatility skew/smile of underlying • Correlation between underlying and interest rates

  4. Hybrid LIBOR Market Model • Spot FX rate • Domestic Forward LIBOR Rates

  5. Hybrid LIBOR Market Model • Foreign forward LIBOR rates

  6. FX Option Price • Forward FX Rate • FX Call Option Price

  7. Asymptotic Expansion Method • Simple example • Taylor’s series expansion

  8. Asymptotic FX Option Formula • Forward FX rate

  9. Domestic forward LIBOR rates • Foreign forward LIBOR rates

  10. Third order asymptotic expansion of forward FX rate

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