Affine LIBOR models with multiple curves: theory, examples and calibration
Research output: Contribution to journal › Journal article › Research › peer-review
Standard
Affine LIBOR models with multiple curves : theory, examples and calibration. / Grbac, Zorana; Papapantoleon, Antonis; Schoenmakers, John; Skovmand, David.
In: SIAM Journal on Financial Mathematics, Vol. 6, No. 1, 2015, p. 984–1025.Research output: Contribution to journal › Journal article › Research › peer-review
Harvard
APA
Vancouver
Author
Bibtex
}
RIS
TY - JOUR
T1 - Affine LIBOR models with multiple curves
T2 - theory, examples and calibration
AU - Grbac, Zorana
AU - Papapantoleon, Antonis
AU - Schoenmakers, John
AU - Skovmand, David
N1 - 42 pages, 11 figures. Updated version, added section on negative rates and positive spreads
PY - 2015
Y1 - 2015
N2 - We introduce a multiple curve framework that combines tractable dynamics and semi-analytic pricing formulas with positive interest rates and basis spreads. Negatives rates and positive spreads can also be accommodated in this framework. The dynamics of OIS and LIBOR rates are specified following the methodology of the affine LIBOR models and are driven by the wide and flexible class of affine processes. The affine property is preserved under forward measures, which allows us to derive Fourier pricing formulas for caps, swaptions and basis swaptions. A model specification with dependent LIBOR rates is developed, that allows for an efficient and accurate calibration to a system of caplet prices.
AB - We introduce a multiple curve framework that combines tractable dynamics and semi-analytic pricing formulas with positive interest rates and basis spreads. Negatives rates and positive spreads can also be accommodated in this framework. The dynamics of OIS and LIBOR rates are specified following the methodology of the affine LIBOR models and are driven by the wide and flexible class of affine processes. The affine property is preserved under forward measures, which allows us to derive Fourier pricing formulas for caps, swaptions and basis swaptions. A model specification with dependent LIBOR rates is developed, that allows for an efficient and accurate calibration to a system of caplet prices.
KW - q-fin.MF
KW - math.PR
KW - q-fin.PR
KW - 91G30, 91G20, 60G44
U2 - 10.1137/15M1011731
DO - 10.1137/15M1011731
M3 - Journal article
VL - 6
SP - 984
EP - 1025
JO - SIAM Journal on Financial Mathematics
JF - SIAM Journal on Financial Mathematics
SN - 1945-497X
IS - 1
ER -
ID: 188789238