Launch of new Toolkit and Spreadsheet Add-in

Details of new module – ‘MBRM 2-Factor Interest Rate Volatility Add-in’ The new module implements the cutting edge 2-factor ‘Brace-Gatarek-Musiela’ (BGM) model to price and risk manage interest rate derivatives. The system automatically calibrates the BGM interest rate model to any of the traded instruments (e.g. swaptions, caps, floors, collars, corridors, digitals etc), including fitting expected correlations between different parts of the curve. Dr Mamdouh Barakat, Managing Director, says ‘A major weakness of the widely used 1-factor interest rate models is that users implicitly assume perfect correlation between short and long term interest rates (i.e. a correlation of 1). Using a 1-factor model, if you tried to price any kind of term spread option trade, e.g. option on the spread ‘6M Libor – 10 year rates’, the single factor models would return completely wrong answers.’


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