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A Cross-Currency Lévy Market Model

[journal article]

Eberlein, Ernst Wilhelm; Koval, Nataliya

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Abstract The Lévy Libor or market model which was introduced in Eberlein and Özkan (2005) is extended to a multi-currency setting. As an application we derive closed form pricing formulas for cross-currency derivatives. Foreign caps and floors, cross-currency swaps and quanto caplets are studied in detail. Numerically efficient pricing algorithms based on bilateral Laplace transforms are derived. A calibration example is given for a two-currency setting (EUR, USD).
Classification Political Economy; Economic Statistics, Econometrics, Business Informatics
Method theory application
Free Keywords Foreign Exchange Markets; Non-Gaussian Option Pricing; Interest Rate Derivatives; LIBOR Market Models; Fixed Income Derivatives; Swap Pricing; Derivative Pricing Models; Levy Process
Document language English
Publication Year 2006
Page/Pages p. 465-480
Journal Quantitative Finance, 6 (2006) 6
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)