@inbook{cfc89306055241e6a996cb9e50278a7b,
title = "The LIBOR Market Model",
abstract = "The modifications to the Heath-Jarrow-Morton framework to cater for market quoted rates such as LIBOR rates were carried out by Brace and Musiela (Math Finance 4(3):259–283, 1994) (henceforth BM). In this chapter, we first describe the BM parameterisation of the Heath–Jarrow–Morton model, and then we outline the choice of volatility functions that produces lognormal dynamics for LIBOR rates. We also discuss the pricing of interest rate caps and swaptions in this framework. In the final section, we summarise the earlier effort to price an interest rate caplet when the forward rate dynamics are Gaussian (i.e. the volatility function is only time dependent).",
keywords = "Bond Price, Equivalent Martingale Measure, Forward Rate, LIBOR Rate, Volatility Function",
author = "Carl Chiarella and He, {Xue Zhong} and Nikitopoulos, {Christina Sklibosios}",
note = "Publisher Copyright: {\textcopyright} 2015, Springer-Verlag Berlin Heidelberg.",
year = "2015",
doi = "10.1007/978-3-662-45906-5_26",
language = "English",
series = "Dynamic Modeling and Econometrics in Economics and Finance",
publisher = "Springer Science and Business Media Deutschland GmbH",
pages = "569--604",
booktitle = "Dynamic Modeling and Econometrics in Economics and Finance",
}