What is it about?
This publication explains a method for calibrating a financial model called the Gaussian two-factor model using swaption. The proposed method is more efficient and stable than the existing one-step method, which is overly sensitive to market changes. This model can be used to estimate the mean reversion separately from other volatility parameters in the interest rate market of Korea and the US.
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Why is it important?
The proposed two-step method for calibrating the Gaussian two-factor model using swaption is unique and timely because it provides a more stable and efficient model than the existing one-step method. This method can be used to estimate the mean reversion separately from other volatility parameters in the interest rate market of Korea and the US. The proposed method can help financial analysts and investors make better decisions by providing more accurate estimates of market changes.
Perspectives
I believe the idea that the simplest is best applies to calibration as well. The complexity of the derivatives market creates many challenges, but I believe that these too can be solved with simple ideas.
Myeongsu Choi
Hanyang University
Read the Original
This page is a summary of: How to calibrate Gaussian two-factor model using swaption, PLOS One, February 2023, PLOS,
DOI: 10.1371/journal.pone.0280829.
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