Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models

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Standard

Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models. / Papapantoleon, Antonis; Schoenmakers, John; Skovmand, David.

I: Journal of Computational Finance, Bind 15, Nr. 4, 06.2012, s. 3-44.

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Harvard

Papapantoleon, A, Schoenmakers, J & Skovmand, D 2012, 'Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models', Journal of Computational Finance, bind 15, nr. 4, s. 3-44. https://doi.org/10.21314/JCF.2012.250

APA

Papapantoleon, A., Schoenmakers, J., & Skovmand, D. (2012). Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models. Journal of Computational Finance, 15(4), 3-44. https://doi.org/10.21314/JCF.2012.250

Vancouver

Papapantoleon A, Schoenmakers J, Skovmand D. Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models. Journal of Computational Finance. 2012 jun.;15(4):3-44. https://doi.org/10.21314/JCF.2012.250

Author

Papapantoleon, Antonis ; Schoenmakers, John ; Skovmand, David. / Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models. I: Journal of Computational Finance. 2012 ; Bind 15, Nr. 4. s. 3-44.

Bibtex

@article{734a3b72902442fcbdc521dcbf92c181,
title = "Efficient and accurate log-L{\'e}vy approximations of L{\'e}vy-driven LIBOR models",
abstract = "The LIBOR market model is very popular for pricing interest rate derivatives but is known to have several pitfalls. In addition, if the model is driven by a jump process, then the complexity of the drift term grows exponentially fast (as a function of the tenor length). We consider a L{\'e}vy-driven LIBOR model and aim to develop accurate and efficient log-L{\'e}vy approximations for the dynamics of the rates. The approximations are based on the truncation of the drift term and on Picard approximation of suitable processes. Numerical experiments for forward-rate agreements, caps, swaptions and sticky ratchet caps show that the approximations perform very well. In addition, we also consider the log-L{\'e}vy approximation of annuities, which offers good approximations for high-volatility regimes.",
author = "Antonis Papapantoleon and John Schoenmakers and David Skovmand",
year = "2012",
month = jun,
doi = "10.21314/JCF.2012.250",
language = "English",
volume = "15",
pages = "3--44",
journal = "Journal of Computational Finance",
issn = "1460-1559",
publisher = "Incisive Media Ltd.",
number = "4",

}

RIS

TY - JOUR

T1 - Efficient and accurate log-Lévy approximations of Lévy-driven LIBOR models

AU - Papapantoleon, Antonis

AU - Schoenmakers, John

AU - Skovmand, David

PY - 2012/6

Y1 - 2012/6

N2 - The LIBOR market model is very popular for pricing interest rate derivatives but is known to have several pitfalls. In addition, if the model is driven by a jump process, then the complexity of the drift term grows exponentially fast (as a function of the tenor length). We consider a Lévy-driven LIBOR model and aim to develop accurate and efficient log-Lévy approximations for the dynamics of the rates. The approximations are based on the truncation of the drift term and on Picard approximation of suitable processes. Numerical experiments for forward-rate agreements, caps, swaptions and sticky ratchet caps show that the approximations perform very well. In addition, we also consider the log-Lévy approximation of annuities, which offers good approximations for high-volatility regimes.

AB - The LIBOR market model is very popular for pricing interest rate derivatives but is known to have several pitfalls. In addition, if the model is driven by a jump process, then the complexity of the drift term grows exponentially fast (as a function of the tenor length). We consider a Lévy-driven LIBOR model and aim to develop accurate and efficient log-Lévy approximations for the dynamics of the rates. The approximations are based on the truncation of the drift term and on Picard approximation of suitable processes. Numerical experiments for forward-rate agreements, caps, swaptions and sticky ratchet caps show that the approximations perform very well. In addition, we also consider the log-Lévy approximation of annuities, which offers good approximations for high-volatility regimes.

UR - http://www.scopus.com/inward/record.url?scp=84973661551&partnerID=8YFLogxK

U2 - 10.21314/JCF.2012.250

DO - 10.21314/JCF.2012.250

M3 - Journal article

AN - SCOPUS:84973661551

VL - 15

SP - 3

EP - 44

JO - Journal of Computational Finance

JF - Journal of Computational Finance

SN - 1460-1559

IS - 4

ER -

ID: 234640526