Journal of Risk
ISSN:
1465-1211 (print)
1755-2842 (online)
Editor-in-chief: Farid AitSahlia
Achieving decorrelation and speed simultaneously in the Libor market model
Mark S. Joshi
Abstract
ABSTRACT
An algorithm for computing the drift in the Libor market model with additional idiosyncratic terms is introduced. This algorithm achieves a computational complexity of order equal to the number of common factors times the number of rates. It is demonstrated that this allows better matching of correlation matrices in reduced-factor models.
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