This module is developed from the paper titled ‘LIBOR Market Model with Stochastic Basis’ presented in Quant USA on June 2010. The respected author of this publication is Fabio Mercurio

This paper extends the LIBOR market model to accommodate the new market practice of using different forward and discount curves in the pricing of interest-rate derivatives. This extension is based on modeling the joint evolution of forward rates belonging to the discount curve and corresponding spreads with FRA rates. price.

Market Model SABR

Strike Price (%)  
# of Years (for Caplet)
# of Division (for Caplet)
Maturity Time (step #)
Pricing Time (in Year)
Interest Rate (%)
alpha ( > 0)
beta ( (0,1] )
epsilon ( >0 )
rho ( [-1,1] )
# of Years (for Swaption)
# of Division (for floating legs)
# of Division (for fixed legs)

It considers general stochastic-volatility dynamics and extract explicit equation of caplet and swaption.

The summary of the implemented module is provided in the following flowchart.

This Module Implemented by Mr. Proteek Chandan Roy & Md. Mizanur Rahman nur