Dr Stefano Galluccio, BNP Paribas
The co-initial swap market model with application to forward smiles generation and multiasset options

In the context of IR derivatives, the understanding of the impact of the correlation among the relevant underlyings (namely LIBOR and swap rates) plays a central role. Different problems, apparently not directly related, share a common denominator where the key ingredient is the modeling of the dependence (in a statistical sense) in a multi-asset environment. In this talk, we will show how a simple approach based on a combined use of swap market models and multi-asset pricing theory is essential to solve a variety of problems. In particular, we apply our framework to some important cases including:
a) The pricing and the risk-management of options on forward contracts, and the associated problem of forward smile generation.
b) The pricing of bond options and amortizing swaptions consistent with the swaption smile surface.