SIAM Presents ... Featured Lectures from our Archives
Most of the Invited and Prize Lectures, as well as selected minisymposia and the tutorial, from the 2012 Conference on Financial Mathematics and Engineering in Minneapolis have been captured and are available as slides with synchronized audio. In addition there are PDFs of the slides available for printing. View presentation slides with synchronized audio or choose just to view the tutorial listed below.


Sunday, July 8, 2012, 1:00 PM – 4:30 PM
Title: Mathematical  Modeling of Interest Rates: Challenges and New Directions
Organizer/Speaker: Fabio Mercurio, Bloomberg Research, New York
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The recent financial crisis has had a strong impact on fixed income markets. Various market rates  that used to tack each other closely -such as LIBOR and OIS rates- suddenly diverged during the 2007 liquidity crisis, introducing significant "basis spreads" which cannot be neglected in models.

Market practice has thereafter forsaken the traditional concept of a single zero-coupon curve, and moved to a multi-curve set up by constructing and using different forward and discount curves.

We review the new modeling issues which arise from the use of multiple yield curves for pricing interest rate derivatives for a given currency. We start by analyzing interest rate market quotes, and by proposing a
simple way to explain their change in behavior. We then propose a new definition of forward LIBOR rate consistent with a multi-curve framework and derive new formulas for swaps, caps and swaptions. We will finally extend short rate models and LIBOR market models to the multi-currency case.


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