A jump-diffusion Libor model and its robust calibration
AbstractIn this paper we propose a jump-diffusion Libor model with jumps in a high-dimensional space (Rm) and test a stable non-parametric calibration algorithm which takes into account a given local covariance structure. The algorithm returns smooth and simply structured Lévy densities, and penalizes the deviation from the Libor market model. In practice, the procedure is FFT based, thus fast, easy to implement, and yields good results, particularly in view of the severe ill-posedness of the underlying inverse problem.
Download InfoIf 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.
Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-037.
Length: 33 pages
Date of creation: Apr 2006
Date of revision:
Libor market model; calibration; correlation; jump-diffusion;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Glasserman & S. G. Kou, 2003. "The Term Structure of Simple Forward Rates with Jump Risk," Mathematical Finance, Wiley Blackwell, vol. 13(3), pages 383-410.
- Denis Belomestny & Stanley Matthew & John Schoenmakers, 2007. "A stochastic volatility Libor model and its robust calibration," SFB 649 Discussion Papers SFB649DP2007-067, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Marcel Ladkau & John G. M. Schoenmakers & Jianing Zhang, 2012. "Libor model with expiry-wise stochastic volatility and displacement," Papers 1204.5698, arXiv.org.
- Antonis Papapantoleon, 2009. "Old and new approaches to LIBOR modeling," Papers 0910.4941, arXiv.org, revised Apr 2010.
- Mathias Trabs, 2011. "Calibration of selfdecomposable Lévy models," SFB 649 Discussion Papers SFB649DP2011-073, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team).
If references are entirely missing, you can add them using this form.