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Looking forward to backward-looking rates: Modelling and calibrating the volatility decay

From QuantMinds in Focus 2021, Interest Rate & IBOR day.

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Fabio Mercurio, Global Head of Quantitative Analytics, Bloomberg L.P., presents his latest work with Andrei Lyashenko on the generalised forward market model (FMM), introduced as a post-LIBOR extension of the classic LIBOR market model (LMM). This time, he focuses on modelling the volatility decay and demonstrates how it can be used to accommodate market data and to ensure a smooth behaviour of key variables.

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