EconPapers    
Economics at your fingertips  
 

THE MULTI-CURVE POTENTIAL MODEL

The Anh Nguyen () and Frank Thomas Seifried
Additional contact information
The Anh Nguyen: Department of Mathematics, University of Kaiserslautern, 67663 Kaiserslautern, Germany
Frank Thomas Seifried: Department IV – Mathematics, University of Trier, Universitätsring 19, 54296 Trier, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2015, vol. 18, issue 07, 1-32

Abstract: We develop a general class of multi-curve potential models for post-crisis interest rates. Our model features positive stochastic basis spreads, positive term structures, and analytic pricing formulae for interest rate derivatives. Making a quanto interpretation of LIBOR lending transactions, we use a multi-currency analogy to model multiple term structures and formulate a general, tractable model of multiple term structures. As a special case of our approach, we obtain a rational lognormal model that extends the original Flesaker–Hughston (1996) rational lognormal model to a multi-curve setting. In this setting we obtain analytic pricing formulae for caps and swaptions.

Keywords: Multi-curve models; potential approach; state-price deflator; foreign exchange rates; rational lognormal model; OIS; LIBOR; FRA rate; FRA spread; LIBOR–OIS spread (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024915500491
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:wsi:ijtafx:v:18:y:2015:i:07:n:s0219024915500491

Ordering information: This journal article can be ordered from

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Series data maintained by Tai Tone Lim ().

 
Page updated 2018-02-17
Handle: RePEc:wsi:ijtafx:v:18:y:2015:i:07:n:s0219024915500491