Mathematical Models in 
Interest Rate Derivative Trading

 

Abstract

Since Black, Scholes, and Merton discovered thirty years ago their famous option pricing formulas, tremendous progress has been made both in option theory and practical trading. Mathematical models are in particular crucial in this fascinating derivative trading area. In this talk, we will first summarize those most popular math models in interest rate derivative trading, such as BGM and Markov functional models. We will also briefly introduce a new skew model and explain some important practical issues. Some open model questions will be stated as well.