A new parameterization for the drift-free simulation in the Libor Market Model

作者：Fernandez Jose L; Nogueiras Maria R; Pou Marta; Vazquez Carlos^*

来源：Revista de la Real Academia de Ciencias Exactas Fisicas y Naturales Serie A-Matematicas, 2015, 109(1): 73-92.

DOI：10.1007/s13398-014-0167-5

• Libor market model
• Drift-free simulation
• Martingale property

We present an efficient procedure to simulate the dynamics of Libor Market Model that avoids the use of drift dependent paths in Monte Carlo simulation. We follow a drift-free simulation methodology by first simulating certain martingales and then obtaining the involved forward Libor rates in terms of them. More precisely, we propose a parameterization of those martingales so that the desired properties of the continuous models can be maintained after the discretization procedure when using either any intermediate forward measure or the spot one. Thus, the need of using the terminal measure to maintain these properties can be overcome. Finally, some numerical results concerning caplets pricing illustrate that the proposed method outperforms other ones existing in the literature.

• 出版日期2015