The Irony in the Derivatives Discounting Part II: The Crisis
Wilmott Journal, Vol. 2, pp. 301-316, 2010
Posted: 28 Sep 2011
Date Written: January 1, 2010
Libor derivative pricing has changed with the crisis; Libor is no longer one unambiguous curve as a large basis has appeared between different Libor tenors. A previous approach to derivative discounting is reviewed in the light of those changes. The valuation of so-called linear derivatives, the yield curve construction and the valuation of vanilla options is analyzed.
Keywords: Coherent pricing, interest rate derivative pricing, Libor, multi-curves, discounting, forward, cost of funding, discounting, irony
JEL Classification: G13, E43, C63
Suggested Citation: Suggested Citation