Libor Market Models Within the Affine and Quadratic Models

33 Pages Posted: 25 Apr 2007

See all articles by Daniel Alexandre Bloch

Daniel Alexandre Bloch

Université Paris VI Pierre et Marie Curie

Date Written: February 2007

Abstract

We are going to use the properties of the Affine and Quadratic jump-diffusion models to formulate a general theory of the libor market model that is consistent with the pricing of both caplets and swaptions. We will assume certain types of processes for the dynamic of the forward rates and their instantaneous volatilities with well known analytic characteristic functions in order to get closed-form solutions for the pricing of caplets and semi-closed-form solutions for swaptions in a stable and efficient manner.

Keywords: libor market model , Affine and Quadratic jump-diffusion models, smile

Suggested Citation

Bloch, Daniel Alexandre, Libor Market Models Within the Affine and Quadratic Models (February 2007). Available at SSRN: https://ssrn.com/abstract=982523 or http://dx.doi.org/10.2139/ssrn.982523

Daniel Alexandre Bloch (Contact Author)

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

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