A Multicurve Cross-Currency LIBOR Market Model

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ID: 10702
2019
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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.
Reference Key
charity2019ajournal Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Wamwea, Charity;Ngare, Philip;Mbele Bidima, Martin Le Doux;Wamwea, Charity;Ngare, Philip;Mbele Bidima, Martin Le Doux;
Journal journal of applied mathematics
Year 2019
DOI
10.1155/2019/8246578
URL
https://www.hindawi.com/journals/jam/2019/8246578/abs/
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