The Libor Market Model: from theory to calibration

This thesis is focused on the financial model for interest rates called the LIBOR Market Model. In the appendixes, we provide the necessary mathematical theory. In the inner chapters, firstly, we define the main interest rates and financial instruments concerning with the interest rate models, then, we set the LIBOR market model, demonstrate its existence, derive the dynamics of forward LIBOR rates and justify the pricing of caps according to the Black’s formula. Then, we also present the Swap Market Model, which models the forward swap rates instead of the LIBOR ones. Even this model is justified by a theoretical demonstration and the resulting formula to price the swaptions coincides with the Black’s one. However, the two models are not compatible from a theoretical point. Therefore, we derive various analytical approximating formulae to price the swaptions in the LIBOR market model and we explain how to perform a Monte Carlo simulation. Finally, we present the calibration of the LIBOR market model to the markets of both caps and swaptions, together with various examples of application to the historical correlation matrix and the cascade calibration of the forward volatilities to the matrix of implied swaption volatilities provided by the market.

Assessing model credibility of CT-Based finite element model to predict bone strength

Osteoporosis is one of the major causes of mortality among the elderly. Nowadays, areal bone mineral density (aBMD) is used as diagnostic criteria for osteoporosis; however, this is a moderate predictor of the femur fracture risk and does not capture the effect of some anatomical and physiological properties on the bone strength estimation. Data from past research suggest that most fragility femur fractures occur in patients with aBMD values outside the pathological range. Subject-specific finite element models derived from computed tomography data are considered better tools to non-invasively assess hip fracture risk. In particular, the Bologna Biomechanical Computed Tomography (BBCT) is an In Silico methodology that uses a subject specific FE model to predict bone strength. Different studies demonstrated that the modeling pipeline can increase predictive accuracy of osteoporosis detection and assess the efficacy of new antiresorptive drugs. However, one critical aspect that must be properly addressed before using the technology in the clinical practice, is the assessment of the model credibility. The aim of this study was to define and perform verification and uncertainty quantification analyses on the BBCT methodology following the risk-based credibility assessment framework recently proposed in the VV-40 standard. The analyses focused on the main verification tests used in computational solid mechanics: force and moment equilibrium check, mesh convergence analyses, mesh quality metrics study, evaluation of the uncertainties associated to the definition of the boundary conditions and material properties mapping. Results of these analyses showed that the FE model is correctly implemented and solved. The operation that mostly affect the model results is the material properties mapping step. This work represents an important step that, together with the ongoing clinical validation activities, will contribute to demonstrate the credibility of the BBCT methodology.