Achieving Decorrelation and Speed Simultaneously in the Libor Market Model

8 Pages Posted: 8 Jun 2006

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Date Written: May 19, 2006

Abstract

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

Suggested Citation

Joshi, Mark, Achieving Decorrelation and Speed Simultaneously in the Libor Market Model (May 19, 2006). Available at SSRN: https://ssrn.com/abstract=907254 or http://dx.doi.org/10.2139/ssrn.907254

Mark Joshi (Contact Author)

University of Melbourne - Centre for Actuarial Studies (deceased) ( email )

Melbourne, 3010
Australia

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