Correlating market models
While swaption prices theoretically contain information on interest rate correlation, Bruce Choy, Tim Dun and Erik Schlögl argue that, for any practical purpose, this information cannot be extracted. Care must therefore be taken when pricing correlation-sensitive instruments in a model calibrated to caps and swaptions. The good news is that Bermudan swaptions do not fall into this category: their prices do not react substantially even when radically different correlation structures are fed into the model
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