Browsing by Author "Gumbo, Victor"

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    The SAFEX-JIBAR Market Models
    (Scientific Research, 2012-11) Gumbo, Victor
    It is possible to construct an arbitrage-free interest rate model in which the LIBOR rates follow a log-normal process leading to Black-type pricing formulae for caps and floors. The key to their approach is to start directly with modeling observed market rates, LIBOR rates in this case, instead of instantaneous spot rates or forward rates. This model is known as the LIBOR Market Model. We formulate the SAFEX-JIBAR market model based on the fact that the forward JIBAR rates follow a log-normal process. Formulae of the Black-type are deduced.