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2019 A Multicurve Cross-Currency LIBOR Market Model
Charity Wamwea, Philip Ngare, Martin Le Doux Mbele Bidima
J. Appl. Math. 2019: 1-17 (2019). DOI: 10.1155/2019/8246578

Abstract

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.

Citation

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Charity Wamwea. Philip Ngare. Martin Le Doux Mbele Bidima. "A Multicurve Cross-Currency LIBOR Market Model." J. Appl. Math. 2019 1 - 17, 2019. https://doi.org/10.1155/2019/8246578

Information

Received: 23 October 2018; Revised: 29 January 2019; Accepted: 11 February 2019; Published: 2019
First available in Project Euclid: 16 May 2019

zbMATH: 07132123
MathSciNet: MR3927967
Digital Object Identifier: 10.1155/2019/8246578

Rights: Copyright © 2019 Hindawi

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