XVII Workshop on Quantitative Finance -- Session on INTEREST RATES AND FOREIGN EXCHANGE (Sala Azzurra)

communication: INTEREST RATES... : HJM multiple-curve model with time-changed Levy processes

speaker: Laura Ballotta
speaker: Gianluca Fusai
speaker: Anna Maria Gambaro

abstract: We propose a multiplecurve model, set in the HeathJarrowMorton framework (Heat, Jarrow and Morton (1992)), with timechanged Levy processes. This paper is inspired by the work of Eberlein and Raible (1999) on Levy models, generalized in Crepey et al. (2014) to a multiple curve setting. To the best of our knowledge, no previous work presents a theoretically consistent noarbitrage framework for pricing interest rate derivatives with timechanged Levy process. Moreover we apply these processes to a multiplecurve post crisis setup. First of all, we build a term structure for zero coupon bonds and Libor FRA rates and we derive sufficient conditions to ensure the absence of arbitrage. The pricing of interest rate derivatives, as caps and swaptions, is developed using the Fourier transform method. Finally different choices for the construction of the driving process are examined and compared.

timetable:
Thu 28 Jan, 11:00 - 13:00, Sala Azzurra
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