@inproceedings{6cac7b0c0c02471a9c71cbf1bded0952,
title = "Approximate option pricing in the l{\'e}vy libor model",
abstract = "In this paper we consider the pricing of options on interest rates such as caplets and swaptions in the L{\'e}vy Libor model developed by Eberlein and {\"O}zkan (Financ. Stochast. 9:327-348 (2005) [9]). This model is an extension to L{\'e}vy driving processes of the classical log-normal Libor market model (LMM) driven by a Brownianmotion. Option pricing is significantly less tractable in thismodel than in theLMM due to the appearance of stochastic terms in the jump part of the driving process when performing the measure changes which are standard in pricing of interest rate derivatives. To obtain explicit approximation for option prices, we propose to treat a given L{\'e}vy Libor model as a suitable perturbation of the log-normal LMM. The method is inspired by recent works by Cˇ ern{\'y}, Denkl, and Kallsen (Preprint (2013) [6]) and M{\'e}nass{\'e} and Tankov (Preprint (2015) [14]). The approximate option prices in the L{\'e}vy Libor model are given as the corresponding LMM prices plus correction terms which depend on the characteristics of the underlying L{\'e}vy process and some additional terms obtained from the LMM model.",
keywords = "Asymptotic approximation, Caplet, Libor market model, L{\'e}vy Libor model, Swaption",
author = "Zorana Grbac and David Krief and Peter Tankov",
note = "Publisher Copyright: {\textcopyright} Springer International Publishing Switzerland 2016.; Workshop on Advanced Modelling in Mathematical Finance, 2015 ; Conference date: 20-05-2015 Through 22-05-2015",
year = "2016",
month = jan,
day = "1",
doi = "10.1007/978-3-319-45875-5\_19",
language = "English",
isbn = "9783319458731",
series = "Springer Proceedings in Mathematics and Statistics",
publisher = "Springer New York LLC",
pages = "453--476",
editor = "Jan Kallsen and Antonis Papapantoleon",
booktitle = "Advanced Modelling in Mathematical Finance - In Honour of Ernst Eberlein",
}