A Unified View of LIBOR Models

DOI10.1007/978-3-319-45875-5_18zbMATH Open1367.91182arXiv1601.01352OpenAlexW3122284141MaRDI QIDQ4976510FDOQ4976510

Authors: Kathrin Glau, Zorana Grbac, Antonis Papapantoleon 

Publication date: 31 July 2017

Published in: Springer Proceedings in Mathematics & Statistics (Search for Journal in Brave)

Abstract: 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 arbitrage-free which are easily verifiable, and for the LIBOR rates to be true martingales under the respective forward measures. We discuss when the conditions are also necessary and comment on further desirable properties such as those leading to analytical tractability and positivity of rates. This framework allows to consider several popular models in the literature, such as LIBOR market models driven by Brownian motion or jump processes, the L'evy forward price model as well as the affine LIBOR model, under one umbrella. Moreover, we derive structural results about LIBOR models and show, in particular, that only models where the forward price is an exponentially affine function of the driving process preserve their structure under different forward measures.

Full work available at URL: https://arxiv.org/abs/1601.01352

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zbMATH Keywords

semimartingalesLiborforward priceLibor market modelsaffine Libor modelsLévy forward price models

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30) Interest rates, asset pricing, etc. (stochastic models) (91G30)

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Cited In (9)

• A new simulation approach to the LIBOR market model
• Stochastic interest rate modelling using a single or multiple curves: an empirical performance analysis of the Lévy forward price model
• Libor market model under the real-world measure
• \(L^2\)-theoretical study of the relation between the LIBOR market model and the HJM model
• A tractable LIBOR model with default risk
• The affine LIBOR models
• TRIVARIATE SUPPORT OF FLAT-VOLATILITY FORWARD LIBOR RATES
• Affine LIBOR models driven by real-valued affine processes
• Continuous tenor extension of affine LIBOR models with multiple curves and applications to XVA

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