Admissibility of Generic Market Models of Forward Swap Rates

34 Pages Posted: 24 Sep 2014

See all articles by Libo Li

Libo Li

The University of Sydney

Marek Rutkowski

The University of Sydney - School of Mathematics and Statistics

Date Written: October 2014

Abstract

Our main goal is to re‐examine and extend certain results from the papers by Galluccio et al. and Pietersz and van Regenmortel. We establish several results providing alternate necessary and sufficient conditions for admissibility of a family of forward swaps, that is, the property that it is supported by a (positive) family of bonds associated with the underlying tenor structure. We also derive the generic expression for the joint dynamics of a family of forward swap rates under a single probability measure and we show that these dynamics are uniquely determined by a selection of volatility processes with respect to the set of driving martingales.

Keywords: forward swap rate, market model, Libor, admissibility

Suggested Citation

Li, Libo and Rutkowski, Marek, Admissibility of Generic Market Models of Forward Swap Rates (October 2014). Mathematical Finance, Vol. 24, Issue 4, pp. 728-761, 2014. Available at SSRN: https://ssrn.com/abstract=2501109 or http://dx.doi.org/10.1111/mafi.12001

Libo Li (Contact Author)

The University of Sydney

Marek Rutkowski

The University of Sydney - School of Mathematics and Statistics ( email )

Sydney, New South Wales 2006
Australia

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