New and robust drift approximations for the LIBOR market model

Mark Joshi and Alan Stacey

Quantitative Finance, 2008, vol. 8, issue 4, 427-434

Abstract: We present four new methods for approximating the drift in the LIBOR market model when performing very long steps. These are compared with a variety of existing methods, including PPR, Glasserman-Zhao and predictor-corrector. We find that two of them, which use correlation adjustments to better approximate the drift, are more effective than existing methods.

Keywords: Financial mathematics; Financial modelling; Financial simulation; Financial engineering; Derivatives pricing; Derivative pricing models (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (15)

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DOI: 10.1080/14697680701458000

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