New and Robust Drift Approximations for the Libor Market Model

17 Pages Posted: 12 Jun 2006

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Alan M. Stacey

Lehman Brothers International, Europe

Date Written: February 7, 2006

Abstract

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

Joshi, Mark and Stacey, Alan M., New and Robust Drift Approximations for the Libor Market Model (February 7, 2006). Available at SSRN: https://ssrn.com/abstract=907385 or http://dx.doi.org/10.2139/ssrn.907385

Mark Joshi (Contact Author)

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

Melbourne, 3010
Australia

Alan M. Stacey

Lehman Brothers International, Europe ( email )

25 Bank Street
30th Floor
London E14 5LE
United Kingdom

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