PT - JOURNAL ARTICLE
AU - Weigel, Peter
TI - Optimal Calibration of LIBOR Market Models to Correlations
AID - 10.3905/jod.2004.450967
DP - 2004 Nov 30
TA - The Journal of Derivatives
PG - 43--50
VI - 12
IP - 2
4099 - http://jod.iijournals.com/content/12/2/43.short
4100 - http://jod.iijournals.com/content/12/2/43.full
AB - Another case in which correlations are critical is calibration of the LIBOR market model either to a set of implied correlations from swaption prices or to a set of estimated correlations from historical rate movements. The problem is that if there are n LIBOR rates under consideration, their correlation matrix will have n dimensions. In this article, Weigel presents a simple technique to reduce the dimensionality of the problem. He shows how the ?method of alternating projections? produces the correlation matrix of rank k