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Abstract: We derive explicit valuation formulae for an exotic path-dependent interestrate derivative, namely an option on the composition of LIBOR rates. Theformulae are based on Fourier transform methods for option pricing. We considertwo models for the evolution of interest rates: an HJM-type forward rate modeland a LIBOR-type forward price model. Both models are driven by atime-inhomogeneous L\-evy process.



Author: Wolfgang Kluge, Antonis Papapantoleon

Source: https://arxiv.org/







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