THE MULTI-CURVE POTENTIAL MODEL

Author:

NGUYEN THE ANH1,SEIFRIED FRANK THOMAS2

Affiliation:

1. Department of Mathematics, University of Kaiserslautern, 67663 Kaiserslautern, Germany

2. Department IV – Mathematics, University of Trier, Universitätsring 19, 54296 Trier, Germany

Abstract

We develop a general class of multi-curve potential models for post-crisis interest rates. Our model features positive stochastic basis spreads, positive term structures, and analytic pricing formulae for interest rate derivatives. Making a quanto interpretation of LIBOR lending transactions, we use a multi-currency analogy to model multiple term structures and formulate a general, tractable model of multiple term structures. As a special case of our approach, we obtain a rational lognormal model that extends the original Flesaker–Hughston (1996) rational lognormal model to a multi-curve setting. In this setting we obtain analytic pricing formulae for caps and swaptions.

Publisher

World Scientific Pub Co Pte Lt

Subject

General Economics, Econometrics and Finance,Finance

Cited by 16 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. The Geometry of Multi-curve Interest Rate Models;SSRN Electronic Journal;2024

2. A Linear-Rational Multi-Curve Term Structure Model with Stochastic Spread;SSRN Electronic Journal;2022

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4. THE AFFINE RATIONAL POTENTIAL MODEL;International Journal of Theoretical and Applied Finance;2021-09

5. Multiple yield curve modelling with CBI processes;Mathematics and Financial Economics;2021-01-09

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