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

Abstract:
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.