On the valuation of compositions in L\'evy term structure models
AbstractWe derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models for the evolution of interest rates: an HJM-type forward rate model and a LIBOR-type forward price model. Both models are driven by a time-inhomogeneous L\'evy process.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0902.3456.
Date of creation: Feb 2009
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Publication status: Published in Quantitative Finance 2009, Vol. 9, No. 8, 951-959
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
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