A Bound on Libor Futures Prices for Hjm Yield Curve Models
نویسندگان
چکیده
We prove that for a large class of widely used term structure models there is a simple theoretical upper bound for value of LIBOR futures prices. When this bound is compared to observed futures prices, one nevertheless finds that the theoretical bound is sometimes violated by market prices. The main consequence of this observation is that virtually all of the important fixed income models have theoretical implications that are sometimes at odds with market realities, at least when they are applied to futures markets.
منابع مشابه
Convexity Bias in Eurodollar Futures Prices: a Dimension-free Hjm Criterion
In the theory of interest rate futures, the difference between the futures rate and forward rate is called the “convexity bias,” and there are are several widely offered reasons why the convexity bias should be positive. Nevertheless, it is not infrequent that the empirical the bias is observed to be negative. Moreover, in its most general form, the benchmark HJM term structure model is agnosti...
متن کاملSpot, Forward, and Futures Libor Rates
The properties of forward and futures interest-rate contracts associated with a given collection of reset dates are studied within the frameworks of the Gaussian HJM model and the lognormal model of Libor rates. We focus on the dynamics and distributional properties of spot, forward, and futures Libor rates under spot and forward martingale measures.
متن کاملLIBOR , Swap Rates and Black ’ s Formulae for Caps and
One of the principal disadvantages of short rate models, and HJM models more generally, is that they focus on unobservable instantaneous interest rates. The so-called market models that were developed in the late 90’s overcome this problem by directly modelling observable market rates such as LIBOR and swap rates. These models are straightforward to calibrate and have quickly gained widespread ...
متن کاملA defaultable HJM multiple-curve term structure model
In the aftermath of the 2007–09 financial crisis, a variety of spreads have developed between quantities that had been essentially the same until then, notably LIBOR-OIS spreads, LIBOR-OIS swap spreads, and basis swap spreads. In this paper we study the valuation of LIBOR interest rate derivatives in a multiple-curve setup, which accounts for a discrepancy between a risk-free discount curve and...
متن کاملOn the Martingale Framework for Futures Prices
We provide a framework for the martingale representation for futures prices which has some concrete advantages over the classical treatments of Duffie (2001) or Karatzas and Shreve (1998). In particular, the new formulation accommodates models where the distribution of the associated risk-free rate has unbounded support. This relaxation is particularly useful in the theory of LIBOR futures.
متن کامل