The affine LIBOR models

Details The affine LIBOR models The affine LIBOR models

2009-04-03

arxiv.org/abs/0904.0555v5

Economy

Quantitative Finance

Pricing of Securities

32 pages, 2 figures, submitted. Valuation formulas for swaptions in multi-factor models added

Scientific paper

We provide a general and flexible approach to LIBOR modeling based on the class of affine factor processes. Our approach respects the basic economic requirement that LIBOR rates are non-negative, and the basic requirement from mathematical finance that LIBOR rates are analytically tractable martingales with respect to their own forward measure. Additionally, and most importantly, our approach also leads to analytically tractable expressions of multi-LIBOR payoffs. This approach unifies therefore the advantages of well-known forward price models with those of classical LIBOR rate models. Several examples are added and prototypical volatility smiles are shown. We believe that the CIR-process based LIBOR model might be of particular interest for applications, since closed form valuation formulas for caps and swaptions are derived.

Affiliated with

Also associated with

No associations

Rating

The affine LIBOR models does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with The affine LIBOR models, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and The affine LIBOR models will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-150694