Economics at your fingertips  

Affine LIBOR models with multiple curves: theory, examples and calibration

Zorana Grbac, Antonis Papapantoleon, John Schoenmakers and David Skovmand

Papers from

Abstract: We introduce a multiple curve framework that combines tractable dynamics and semi-analytic pricing formulas with positive interest rates and basis spreads. Negatives rates and positive spreads can also be accommodated in this framework. The dynamics of OIS and LIBOR rates are specified following the methodology of the affine LIBOR models and are driven by the wide and flexible class of affine processes. The affine property is preserved under forward measures, which allows us to derive Fourier pricing formulas for caps, swaptions and basis swaptions. A model specification with dependent LIBOR rates is developed, that allows for an efficient and accurate calibration to a system of caplet prices.

Date: 2014-05, Revised 2015-08
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (5) Track citations by RSS feed

Published in SIAM Journal on Financial Mathematics 6, 984-1025, 2015

Downloads: (external link) Latest version (application/pdf)

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:

Access Statistics for this paper

More papers in Papers from
Series data maintained by arXiv administrators ().

Page updated 2017-09-29
Handle: RePEc:arx:papers:1405.2450