New and robust drift approximations for the LIBOR market model
AbstractWe present four new methods for approximating the drift in the LIBOR market model when performing very long steps. These are compared with a variety of existing methods, including PPR, Glasserman-Zhao and predictor-corrector. We find that two of them, which use correlation adjustments to better approximate the drift, are more effective than existing methods.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 8 (2008)
Issue (Month): 4 ()
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Web page: http://www.tandfonline.com/RQUF20
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- Antonis Papapantoleon & Maria Siopacha, 2009. "Strong Taylor approximation of stochastic differential equations and application to the L\'evy LIBOR model," Papers 0906.5581, arXiv.org, revised Oct 2010.
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