A jump-diffusion Libor model and its robust calibration

Denis Belomestny and John Schoenmakers

Quantitative Finance, 2010, vol. 11, issue 4, 529-546

Abstract: In this paper we propose a jump-diffusion Libor model with jumps in a high-dimensional space (ℝm) and test a stable non-parametric calibration algorithm that takes into account a given local covariance structure. The algorithm returns smooth and simply structured Levy densities, and penalizes the deviation from the Libor market model. In practice, the procedure is FFT based, thus fast, easy to implement, and yields good results, particularly in view of the severe ill-posedness of the underlying inverse problem.

Keywords: LIBOR market models; American options; Monte Carlo methods; Statistical methods (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/14697680903295176 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:11:y:2010:i:4:p:529-546

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697680903295176

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().