Achieving Decorrelation and Speed Simultaneously in the Libor Market Model
8 Pages Posted: 8 Jun 2006
Date Written: May 19, 2006
An algorithm for computing the drift in the LIBOR market model with additional idiosyncratic terms is introduced. This algorithm achieves a computational complexity of order equal to the number of common factors times the number of rates. It is demonstrated that this allows better matching of correlation matrices in reduced-factor models.
Keywords: LIBOR market model, low factor, efficiency
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