Libor replacement: a modelling framework for in-arrears term rates

Andrei Lyashenko and Fabio Mercurio expand rates modelling to the post-Libor world


Andrei Lyashenko and Fabio Mercurio define and model forward risk-free term rates – which appear in the payoff definition of derivatives and possibly cash instruments – based on the new interest rate benchmarks that are to replace Ibors globally. They show that the classic interest rate modelling framework can be naturally extended to describe the evolution of both the forward-looking and backward-looking term rates using the same stochastic process

Ibors, which

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