Related papers: The affine inflation market models
The class of affine LIBOR models is appealing since it satisfies three central requirements of interest rate modeling. It is arbitrage-free, interest rates are nonnegative and caplet and swaption prices can be calculated analytically. In…
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…
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…
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as…
We formulate a forward inflation index model with multi-factor volatility structure featuring a parametric form that allows calibration to correlations between indices of different tenors observed in the market. Assuming the nominal…
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 HJM modeling, can be consolidated. We model a numeraire process and…
The main result of this paper that a martingale evolution can be chosen for Libor such that all the Libor interest rates have a common market measure; the drift is fixed such that each Libor has the martingale property. Libor is described…
In this article, we review the construction and properties of some popular approaches to modeling LIBOR rates. We discuss the following frameworks: classical LIBOR market models, forward price models and Markov-functional models. We close…
We provide a unified framework for modeling LIBOR rates using general semimartingales as driving processes and generic functional forms to describe the evolution of the dynamics. We derive sufficient conditions for the model to be…
We construct models for the pricing and risk management of inflation-linked derivatives. The models are rational in the sense that linear payoffs written on the consumer price index have prices that are rational functions of the state…
We develop a model to price inflation and interest rates derivatives using continuous-time dynamics that have some links with macroeconomic monetary DSGE models equipped with a Taylor rule: in particular, the reaction function of the…
We present a flexible approach for the valuation of interest rate derivatives based on Affine Processes. We extend the methodology proposed in Keller-Ressel et al. (2009) by changing the choice of the state space. We provide…
We show that, for the purpose of pricing Swaptions, the Swap rate and the corresponding Forward rates can be considered lognormal under a single martingale measure. Swaptions can then be priced as options on a basket of lognormal assets and…
In order to overcome the drawbacks of assuming deterministic volatility coefficients in the standard LIBOR market models to capture volatility smiles and skews in real markets, several extensions of LIBOR models to incorporate stochastic…
Models which postulate lognormal dynamics for interest rates which are compounded according to market conventions, such as forward LIBOR or forward swap rates, can be constructed initially in a discrete tenor framework. Interpolating…
We propose a new model for the joint evolution of the European inflation rate, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting. We derive the valuation equation for…
The aim of this paper is to present a dual-term structure model of interest rate derivatives in order to solve the two hardest problems in financial modeling: the exact volatility calibration of the entire swaption matrix, and the…
This thesis is devoted to the study of affine processes and their applications in financial mathematics. In the first part we consider the theory of time-inhomogeneous affine processes on general state spaces. We present a concise setup for…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
Alternative risk-free rates (RFRs) play a central role in the reform of interest rate benchmarks. We study a model for RFRs driven by a general affine process. Under minimal assumptions, we derive explicit valuation formulas for…