On the valuation of compositions in L\'evy term structure models
Pricing of Securities
2010-02-26 v1 Probability
Abstract
We derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models for the evolution of interest rates: an HJM-type forward rate model and a LIBOR-type forward price model. Both models are driven by a time-inhomogeneous L\'evy process.
Keywords
Cite
@article{arxiv.0902.3456,
title = {On the valuation of compositions in L\'evy term structure models},
author = {Wolfgang Kluge and Antonis Papapantoleon},
journal= {arXiv preprint arXiv:0902.3456},
year = {2010}
}
Comments
17 pages, 2 figures, to appear in Quant. Finance