New and Robust Drift Approximations for the Libor Market Model
17 Pages Posted: 12 Jun 2006
Date Written: February 7, 2006
We present four new methods for approximating the drift in the LIBOR market model. These are compared to a variety of existing methods including PPR, Glasserman-Zhao and predictor-corrector. We see that two of them which use correlation adjustments to better approximate the drift are more effective than existing methods.
Keywords: LIBOR market model, drift approximation, Monte Carlo
JEL Classification: C19
Suggested Citation: Suggested Citation