We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The Lévy LIBOR model.
- Authors
Eberlein, Ernst; Özkan, Fehmi
- Abstract
Models driven by Lévy processes are attractive because of their greater flexibility compared to classical diffusion models. First we derive the dynamics of the LIBOR rate process in a semimartingale as well as a Lévy Heath-Jarrow-Morton setting. Then we introduce a Lévy LIBOR market model. In order to guarantee positive rates, the LIBOR rate process is constructed as an ordinary exponential. Via backward induction we get that the rates are martingales under the corresponding forward measures. An explicit formula to price caps and floors which uses bilateral Laplace transforms is derived.
- Subjects
DIFFUSION processes; DYNAMICS; MARTINGALES (Mathematics); STOCHASTIC processes; MATHEMATICS
- Publication
Finance & Stochastics, 2005, Vol 9, Issue 3, p327
- ISSN
0949-2984
- Publication type
Article
- DOI
10.1007/s00780-004-0145-4