A cross-currency Levy market model
The Levy Libor or market model which was introduced in Eberlein and Ozkan (The Levy Libor model. Financ. Stochast., 2005, 9, 327-348) is extended to a multi-currency setting. As an application we derive closed form pricing formulas for cross-currency derivatives. Foreign caps and floors and cross-currency swaps are studied in detail. Numerically efficient pricing algorithms based on bilateral Laplace transforms are derived. A calibration example is given for a two-currency setting (EUR, USD).
Volume (Year): 6 (2006)
Issue (Month): 6 ()
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Research Paper Series
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