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Moment explosion in the LIBOR market model

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  • Gerhold, Stefan

Abstract

In the LIBOR market model, forward interest rates are log-normal under their respective forward measures. This note shows that their distributions under the other forward measures of the tenor structure have approximately log-normal tails.

Suggested Citation

  • Gerhold, Stefan, 2011. "Moment explosion in the LIBOR market model," Statistics & Probability Letters, Elsevier, vol. 81(5), pages 560-562, May.
    • Handle: RePEc:eee:stapro:v:81:y:2011:i:5:p:560-562
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    References listed on IDEAS

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    1. Alan Brace & Dariusz G¸atarek & Marek Musiela, 1997. "The Market Model of Interest Rate Dynamics," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 127-155, April.
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    Cited by:

    1. Dan Pirjol, 2013. "Explosive Behavior In A Log-Normal Interest Rate Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(04), pages 1-23.
    2. Florian Gach & Simon Hochgerner & Eva Kienbacher & Gabriel Schachinger, 2023. "Mean-field Libor market model and valuation of long term guarantees," Papers 2310.09022, arXiv.org, revised Nov 2023.
    3. Dan Pirjol, 2016. "Eurodollar futures pricing in log-normal interest rate models in discrete time," Applied Mathematical Finance, Taylor & Francis Journals, vol. 23(6), pages 445-464, November.
    4. Sascha Desmettre & Simon Hochgerner & Sanela Omerovic & Stefan Thonhauser, 2021. "A mean-field extension of the LIBOR market model," Papers 2109.10779, arXiv.org.

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