A Survey on Modeling and Analysis of Basis Spreads
The recent financial crisis has spiked the credit and liquidity premia among financial products, and significant widening of basis spreads among Libors with different tenors and currencies has been observed in interest rate markets. Our previous work, "A Note on Construction of Multiple Swap Curves with and without Collateral" has developed an arbitrage-free curve construction method with all the relevant spreads taken into account. This short note carries out a brief survey on the existing analysis of spreads' dynamics and pricing models as a preparation for the development of a model that enables us to price and hedge generic financial derivatives under the new market condition.
|Date of creation:||Dec 2009|
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- Jun Liu & Francis A. Longstaff & Ravit E. Mandell, 2006.
"The Market Price of Risk in Interest Rate Swaps: The Roles of Default and Liquidity Risks,"
The Journal of Business,
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- Grinblatt, Mark, 1995. "An Analytic Solution for Interest Rate Swap Spreads," University of California at Los Angeles, Anderson Graduate School of Management qt9s13f3zx, Anderson Graduate School of Management, UCLA.
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