A jump-diffusion Libor model and its robust calibration
In 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.
|Date of creation:||Apr 2006|
|Contact details of provider:|| Postal: Spandauer Str. 1,10178 Berlin|
Web page: http://sfb649.wiwi.hu-berlin.de
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- Ernst Eberlein & Fehmi Özkan, 2005. "The Lévy LIBOR model," Finance and Stochastics, Springer, vol. 9(3), pages 327-348, 07.
- 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. Full references (including those not matched with items on IDEAS)
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