Libor replacement II: completing the generalised forward market model

The FMM is upgraded to model the full term structure, pricing all possible bonds and the bank account


In this paper, Andrei Lyashenko and Fabio Mercurio show that the generalised forward market model (FMM) they previously introduced can be effectively extended to make it a complete term-structure model describing the evolution of all possible bond prices as well as of the bank account, which is needed to compute backward-looking term rates. The FMM extension results in a model that is effectively a hybrid between a Libor market model and a Markovian Heath-Jarrow

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