We develop a systematic approach to Markovian projection onto an effective displaced diffusion, and work out a set of computationally efficient formulas valid for a large class of non-Markovian underlying processes. The generic derivation is followed by applications, including the swaption pricing for the BGM model and the calculation of FX options in cross-currency BGM model.

Alexandre Antonov got his PhD degree from the Landau Institute for Theoretical Physics in 1997 and joined NumeriX LLC in 1998 where he currently works as a Senior Vice President of Quantitative Research. His activity is concentrated on modeling and numerical methods for interest rates, cross currency, and hybrids. He is a regular speaker for NumeriX at international conferences.