The 2008 financial crisis revealed major flaws in traditional financial models, prompting a shift to more advanced multi-curve frameworks. Following the 2007 credit crunch, financial markets moved from a single-curve model to a dual-curve, single-currency approach, exposing the limitations of earlier assumptions. This transition significantly impacted financial institutions, especially those in life insurance, where long-term contracts depend on the performance of underlying investments. To comply with European Insurance and Occupational Pensions Authority (EIOPA) standards, financial simulations must operate in a risk-neutral framework, calibrated to current market conditions and derivative prices while ensuring market consistency. This thesis develops a two-curve framework to address market inconsistencies and improve the accuracy of derivative pricing. Using a foreign-currency analogy, it derives generalized no-arbitrage formulas for key interest rate derivatives, such as caplets. The study also analyzes synthetic data to examine pricing and volatility behaviors across different curve setups. The results provide some insights into swaption implied volatilities and the potential effects of curve shifts on Monte Carlo pricing, which may have practical relevance for regulatory and market-related applications.     «

The 2008 financial crisis revealed major flaws in traditional financial models, prompting a shift to more advanced multi-curve frameworks. Following the 2007 credit crunch, financial markets moved from a single-curve model to a dual-curve, single-currency approach, exposing the limitations of earlier assumptions. This transition significantly impacted financial institutions, especially those in life insurance, where long-term contracts depend on the performance of underlying investments. To comp...     »