Advanced Search
MyIDEAS: Login to save this article or follow this journal

Modern Libor Market Models: Using Different Curves For Projecting Rates And For Discounting

Contents:

Author Info

  • FABIO MERCURIO

    ()
    (Bloomberg LP, 731 Lexington, New York, NY 10022, USA)

Registered author(s):

    Abstract

    We introduce an extended LIBOR market model that is compatible with the current market practice of building different yield curves for different tenors and for discounting. The new paradigm is based on modeling the joint evolution of FRA rates and forward rates belonging to the discount curve. We will start by analyzing the basic lognormal case, then we will add stochastic volatility. The dynamics of FRA rates under different measures will be obtained and closed form formulas for caplets and swaptions derived in the lognormal and Heston (1993) cases.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S021902491000570X
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S021902491000570X
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 13 (2010)
    Issue (Month): 01 ()
    Pages: 113-137

    as in new window
    Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:01:p:113-137

    Contact details of provider:
    Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

    Order Information:
    Email:

    Related research

    Keywords: Credit crisis; interest rates; basis; forward curves; discount curve; LIBOR market model; measure change; caps; swaptions; analytical formulas; stochastic volatility;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Marco, Bianchetti, 2011. "The Zeeman Effect in Finance: Libor Spectroscopy and Basis Risk Management," MPRA Paper 42247, University Library of Munich, Germany, revised 27 Oct 2012.
    2. Bianchetti, Marco & Carlicchi, Mattia, 2012. "Markets Evolution After the Credit Crunch," MPRA Paper 44023, University Library of Munich, Germany.
    3. Christa Cuchiero & Claudio Fontana & Alessandro Gnoatto, 2014. "A general HJM framework for multiple yield curve modeling," Science & Finance (CFM) working paper archive 1406.4301, Science & Finance, Capital Fund Management.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:13:y:2010:i:01:p:113-137. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.