The SAFEX-JIBAR Market Models
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Date
2012-11
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Scientific Research
Abstract
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.
Description
This article is published on Journal of Mathematical Finance Vol. 2, pp.321-326 in 2012. It is about the construction of the SAFEX-JIBAR model which gives prices consistent with both economic practicality and with other Black-type models.
Keywords
LIBOR, SAFEX-JIBAR, Market Models, Caps, Floors, Collars
Citation
Gumbo, V. 2012. The SAFEX-JIBAR Market Models. Journal of Mathematical Finance, 2, pp. 321-326.