LIBOR market model
View article
Linear‐Rational Term Structure Models Open
We introduce the class of linear‐rational term structure models in which the state price density is modeled such that bond prices become linear‐rational functions of the factors. This class is highly tractable with several distinct advanta…
View article
A permutation information theory tour through different interest rate maturities: the Libor case Open
This paper analyses Libor interest rates for seven different maturities and referred to operations in British pounds, euros, Swiss francs and Japanese yen, during the period 2001–2015. The analysis is performed by means of two quantifiers …
View article
LIBOR market model with SABR style stochastic volatility Open
We propose and study the SABR/LMM model. This is a term structure model of interest rates with stochastic volatility that is a natural extension of both the LIBOR market model and the SABR model. The key result of the paper is a closed for…
View article
Affine multiple yield curve models Open
We provide a general and tractable framework under which all multiple yield curve modeling approaches based on affine processes, be it short rate, Libor market, or Heath–Jarrow–Morton modeling, can be consolidated. We model a numéraire pro…
View article
An Adjusted Forward Curve for Spot Rate Forecasting Open
In this paper, we provide adjustments for liquidity and credit risk to the forward Libor rate in order to improve accuracy of the forward rate in forecasting the 3-month Libor rate. In particular, we introduce the adjusted forward curve (A…
View article
A Novel Analytical Formula for the Discounted Moments of the ECIR Process and Interest Rate Swaps Pricing Open
This paper presents an explicit formula of conditional expectation for a product of polynomial functions and the discounted characteristic function based on the Cox–Ingersoll–Ross (CIR) process. We also propose an analytical formula as wel…
View article
Information Flow Between Forward and Spot Markets: Evidence From the Chinese Renminbi Open
We apply a new model selection approach that allows for the joint determination of structural breaks and cointegration to examine the term structure of Chinese Renminbi (RMB)‐U.S. dollar spot and forward exchange rates during the managed‐f…
View article
A permutation information theory tour through different interest rate maturities: the Libor case Open
This paper analyses Libor interest rates for seven different maturities and referred to operations in British pounds, euros, Swiss francs and Japanese yen, during the period 2001–2015. The analysis is performed by means of two quantifiers …
View article
Deep Learning-Based BSDE Solver for Libor Market Model with Application to Bermudan Swaption Pricing and Hedging Open
The Libor market model is a mainstay term structure model of interest rates for derivatives pricing, especially for Bermudan swaptions, and other exotic Libor callable derivatives. For numerical implementation the pricing of derivatives wi…
View article
Nonlinear Monte Carlo Schemes for Counterparty Risk on Credit Derivatives Open
Two nonlinear Monte Carlo schemes, namely, the linear Monte Carlo expansion with randomization of Fujii and Takahashi (Int J Theor Appl Financ 15(5):1250034(24), 2012 [9], Q J Financ 2(3), 1250015(24), 2012, [10]) and the marked branching …
View article
Short-Term Rate Benchmarks: The Post-LIBOR Regime Open
The London Interbank Offered Rate (LIBOR), the predominant family of global short-term rate benchmarks for the past 40 years, ceased to exist in June 2023. Given the low volumes of interbank loans on which LIBOR had been based, the revelat…
View article
How to handle negative interest rates in a CIR framework Open
In this paper, we propose a new model to address the problem of negative interest rates that preserves the analytical tractability of the original Cox–Ingersoll–Ross (CIR) model without introducing a shift to the market interest rates, bec…
View article
Looking Forward to Backward-Looking Rates: Completing the Generalized Forward Market Model Open
In this paper, we show how the generalized Forward Market Model (FMM) introduced by Lyashenko and Mercurio (2019) can be extended to make it a complete term-structure model describing the evolution of all points on a yield curve, as well a…
View article
Impact of Multiple-Curve Dynamics in Credit Valuation Adjustments Open
We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework in Pallavicini et al (2011) can be helpful in defining the …
View article
Interest Rates Term Structure Models Driven by Hawkes Processes Open
This paper includes a marked Hawkes process in the original Heath–Jarrow–Morton (HJM) setup and investigates the impact of this assumption on the pricing of the popular vanilla fixed-income derivatives. Our model exhibits a smile that can …
View article
Stochastic interest rate modelling using a single or multiple curves: an empirical performance analysis of the Lévy forward price model Open
In current financial markets negative interest rates have become rather persistent, while in theory it is often common practice to discard such rates as incredible and irrelevant. However, from a risk management perspective, it is cruciall…
View article
Quantifying Correlation Uncertainty Risk in Credit Derivatives Pricing Open
We propose a simple but practical methodology for the quantification of correlation risk in the context of credit derivatives pricing and credit valuation adjustment (CVA), where the correlation between rates and credit is often uncertain …
View article
Fast and accurate exercise policies for Bermudan swaptions in the LIBOR market model Open
This paper describes an American Monte Carlo approach for obtaining fast and accurate exercise policies for pricing of callable LIBOR Exotics (e.g., Bermudan swaptions) in the LIBOR market model using the Stochastic Grid Bundling Method (S…
View article
Interest-rate simulation under the real-world measure within a Gaussian HJM framework Open
This paper studies an interest-rate simulation for risk management under the real-world measure. First, this paper proposes a method to estimate the market price of risk from historical data in a Gaussian Heath, Jarrow, and Morton framewor…
View article
Swaption Pricing under Libor Market Model Using Monte-Carlo Method with Simulated Annealing Optimization Open
The thesis seeks to use simulated annealing optimization to minimize the difference between the value of the libor model volatility and the ones quoted in the market for congruent pricing of a Swaption contract. The simulated annealing opt…
View article
Equilibrium short-rate models vs no-arbitrage models: Literature review and computational examples Open
In this paper equilibrium short-rate models are compared against no-arbitrage short-rate models. This article is composed of the introduction to this literature and a review, followed by numerical examples of one-factor short-rate models; …
View article
EFFICIENT LONG-DATED SWAPTION VOLATILITY APPROXIMATION IN THE FORWARD-LIBOR MODEL Open
We provide efficient swaption volatility approximations for longer maturities and tenors under the lognormal forward-LIBOR model (LFM). In particular, we approximate the swaption volatility with a mean update of the spanning forward rates.…
View article
A unified approach to credit default swaption and constant maturity credit default swap valuation Open
1 Introduction S.1 2 Notation and model setup S.2-6 - 2.1 Default model, bond prices, and basic rates S.2 - 2.2 Forward measures and dynamics of risk free rates S.3 - 2.3 Survival measures and dynamics of risky rates S.4-6 Contents S.7-8 -…
View article
INTERBANK CREDIT RISK MODELING WITH SELF-EXCITING JUMP PROCESSES Open
The credit crunch of 2007 caused major changes in the market of interbank rates making the existing interest rate theory inconsistent. This paper puts forward one way to reconcile practice and theory by modifying the arbitrage-free conditi…
View article
Fast calibration of the Libor market model with stochastic volatility and displaced diffusion Open
This paper demonstrates the efficiency of using Edgeworth and Gram-Charlier expansions in the calibration of the Libor Market Model with Stochastic Volatility and Displaced Diffusion (DD-SV-LMM). Our approach brings together two research a…
View article
The asymptotic behavior of the term structure of interest rates Open
In this dissertation we investigate long-term interest rates, i.e. interest rates with maturity going to infinity, in the post-crisis interest rate market. Three different concepts of long-term interest rates are considered for this purpos…
View article
Data manipulation detection via permutation information theory quantifiers Open
Recent news cast doubts on London Interbank Offered Rate (LIBOR) integrity. Given its economic importance and the delay with which authorities realize about this situation, we aim to find an objective method in order to detect departures i…
View article
A Defaultable HJM Modelling of the Libor Rate for Pricing Basis Swaps after the Credit Crunch Open
A great deal of recent literature discusses the major anomalies that have appeared in the interest rate market following the credit crunch in August 2007. There were major consequences with regard to the development of spreads between quan…
View article
The Valuation of Interest Rate Swap with Bilateral Counterparty Risk Open
This paper presents an analytical model for valuing interest rate swaps, subject to bilateral counterparty credit risk. The counterparty defaults are modeled by the reduced-form model as the first jump of a time-inhomogeneous Poisson proce…
View article
Multiple curve Lévy forward price model allowing for negative interest rates Open
In this paper, we develop a framework for discretely compounding interest rates that is based on the forward price process approach. This approach has a number of advantages, in particular in the current market environment. Compared to the…