Related papers: A unified view of LIBOR models

We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a -possibly discontinuous- semimartingale. A uniqueness…

This paper considers the modelling of collateralized debt obligations (CDOs). We propose a top-down model via forward rates generalizing Filipovi\'c, Overbeck and Schmidt (2009) to the case where the forward rates are driven by a finite…

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 introduce a mean-field extension of the LIBOR market model (LMM) which preserves the basic features of the original model. Among others, these features are the martingale property, a directly implementable calibration and an economically…

In the LIBOR market model, forward interest rates are log-normal under their respective forward measures. This note shows that their distributions under the other forward measures of the tenor structure have approximately log-normal tails.

Given the univariate marginals of a real-valued, continuous-time martingale, (respectively, a family of measures parameterised by $t \in [0,T]$ which is increasing in convex order, or a double continuum of call prices) we construct a family…

We develop a multi-factor stochastic volatility Libor model with displacement, where each individual forward Libor is driven by its own square-root stochastic volatility process. The main advantage of this approach is that, maturity-wise,…

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…

In this paper we develop a framework for discretely compounding interest rates which 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…

In this article we relate the set of structure preserving equivalent martingale measures $(\mathcal{M})$ for financial models driven by semimartingales with conditionally independent increments to a set of measurable and integrable…

We introduce a class of interest rate models, called the $\alpha$-CIR model, which gives a natural extension of the standard CIR model by adopting the $\alpha$-stable L{\'e}vy process and preserving the branching property. This model allows…

We develop an arbitrage-free random field LIBOR market model to price cross-currency derivatives. The uncertainty of the forward LIBOR rates of our cross-currency model is driven by a two time parameter random field instead of a finite…

We consider a general class of continuous asset price models where the drift and the volatility functions, as well as the driving Brownian motions, change at a random time $\tau$. Under minimal assumptions on the random time and on the…

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…

A standing assumption in the literature on proportional transaction costs is efficient friction. Together with robust no free lunch with vanishing risk, it rules out strategies of infinite variation, as they usually appear in frictionless…

We survey some new progress on the pricing models driven by fractional Brownian motion \cb{or} mixed fractional Brownian motion. In particular, we give results on arbitrage opportunities, hedging, and option pricing in these models. We…

In this paper, we study term structure movements in the spirit of Heath, Jarrow, and Morton [Econometrica 60(1), 77-105] under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian…

We investigate the existence of affine realizations for L\'{e}vy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For…

At present, there is an explosion of practical interest in the pricing of interest rate (IR) derivatives. Textbook pricing methods do not take into account the leptokurticity of the underlying IR process. In this paper, such a leptokurtic…

This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…