PolyPaths BGM Model Research

PolyPaths is pleased to announce that it has recently completed research into several topics related to our BGM interest rate model. In particular, the following papers have been recently completed or updated and are available to customers:

  • Finding Skew: A historical regression approach can be used to imply a market skew over a time series of pre-selected benchmark European swaption volatilities. This paper outlines a process to estimate skew and applies this process to estimate recent skew patterns in both the CEV and Displaced Diffusion BGM model extensions based on 2018 market data.
  • Minimizing Partial Vega in Performance Attribution: One drawback to using parametric methods to decompose changes in the market value of an asset over a given horizon is that the price change due to volatility can sometimes show unexpectedly large residual values. This paper outlines research recently done into techniques to minimize this volatility residual and outlines how the results of this research can be implemented using PolyPaths to minimize your partial vega residuals.

Please contact us at support@polypaths.com to obtain copies of this research.