The Irony in the Derivatives Discounting Part II: The Crisis
Marc P. A. Henrard
OpenGamma; University College London - Department of Mathematics
December 20, 2009
Libor derivative pricing has changed with the crisis; Libor is not anymore one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed at the light of those changes. The valuation of so called linear derivatives, the yield curve construction and the valuation of vanilla options is analyzed.
Number of Pages in PDF File: 12
Keywords: coherent pricing, interest rate derivative pricing, Libor, multi-curves, discounting, forward, cost of funding, discounting, irony
JEL Classification: G13, E43, C63
Date posted: July 14, 2009 ; Last revised: December 19, 2009
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