Conclusion

The aim of the first chapters was to provide the building blocks which are necessary to build up a working state of the art interest rate derivatives pricing engine. Especially for deriving the LMM drifts, the stochastic calculus part is a necessity. The intention of the following chapters was to provide good calibration and parameterization methods to "bring the model to life". In the chapter where we have presented the calibration and finally the pricing results, all major outcomes starting with the calculated volatility values, volatility model parameters, factor reduced correlation matrices up to the validated cap and swaption prices with its market price differences are provided. The presented calibration and parameterization methods for the LMM deliver valid results for interest rate derivatives pricing.