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Probability and Computational Finance Seminar
Antonis Papapantoleon
Technical University of Berlin
Title: Affine LIBOR models with multiple curves: theory, examples and calibration

Abstract: In this talk, we present an extension of the LIBOR market model with stochastic basis spreads, in the spirit of the affine LIBOR models. This multiple-curve model satisfies the main no-arbitrage and market requirements (such as nonnegative LIBOR-OIS spreads) by construction. The use of multidimensional affine processes as driving motions ensures the analytical tractability of the model. We provide pricing formulas for caps, swaptions and basis swaptions and discuss an efficient numerical implementation. Furthermore, the connection between the affine LIBOR setup and the 'classical' LIBOR market models is clarified. We present also some new examples of affine processes on $R^2_+$ which admit explicit solutions of the Riccati equations. We conclude this talk by presenting calibration results to market data. This is joint work with Z. Grbac, J. Schoenmakers and D. Skovmand.

Date: Wednesday, September 25, 2013
Time: 5:00 pm
Location: Wean Hall 7201
Submitted by:  Shreve