IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v11y2011i9p1315-1327.html
   My bibliography  Save this article

Correlations in Lévy interest rate models

Author

Listed:
  • Maximilian Beinhofer
  • Ernst Eberlein
  • Arend Janssen
  • Manuel Polley

Abstract

In a series of papers during the last ten years an interest rate theory with models which are driven by Lévy or more general processes has been developed. In this paper we derive explicit formulas for the correlations of interest rates as well as zero coupon bonds with different maturities. The models considered in this general setting are the forward rate (HJM), the forward process and the LIBOR model as well as the multicurrency extension of the latter. Specific subclasses of the class of generalized hyperbolic Lévy motions are studied as driving processes. Based on a data set of parametrized yield curves derived from German government bond prices we estimate correlations. In a second step the empirical correlations are used to calibrate the Lévy forward rate model. The superior performance of the Lévy driven models becomes obvious from the graphs.

Suggested Citation

  • Maximilian Beinhofer & Ernst Eberlein & Arend Janssen & Manuel Polley, 2011. "Correlations in Lévy interest rate models," Quantitative Finance, Taylor & Francis Journals, vol. 11(9), pages 1315-1327, November.
  • Handle: RePEc:taf:quantf:v:11:y:2011:i:9:p:1315-1327
    DOI: 10.1080/14697688.2010.542299
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2010.542299
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Antonis Papapantoleon & John Schoenmakers & David Skovmand, 2011. "Efficient and accurate log-L\'evy approximations to L\'evy driven LIBOR models," Papers 1106.0866, arXiv.org, revised Jan 2012.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:11:y:2011:i:9:p:1315-1327. 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: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.