A Multicurve Cross-Currency LIBOR Market Model

Autor: Charity Wamwea, Philip Ngare, Martin Le Doux Mbele Bidima
Jazyk: angličtina
Rok vydání: 2019
Předmět:
Zdroj: Journal of Applied Mathematics, Vol 2019 (2019)
Druh dokumentu: article
ISSN: 1110-757X
1687-0042
DOI: 10.1155/2019/8246578
Popis: After the dawn of the August 2007 financial crisis, banks became more aware of financial risk leading to the appearance of nonnegligible spreads between LIBOR and OIS rates and also between LIBOR of different tenors. This consequently led to the birth of multicurve models. This study establishes a new model; the multicurve cross-currency LIBOR market model (MCCCLMM). The model extends the initial LIBOR Market Model (LMM) from the single-curve cross-currency economy into the multicurve cross-currency economy. The model incorporates both the risk-free OIS rates and the risky forward LIBOR rates of two different currencies. The established model is suitable for pricing different quanto interest rate derivatives. A brief illustration is given on the application of the MCCCLMM on pricing quanto caplets and quanto floorlets using a Black-like formula derived from the MCCCLMM.
Databáze: Directory of Open Access Journals
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