BFS 2002 |
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Contributed Talk |
Erik Schloegl
Models which postulate lognormal dynamics for interest rates which
are compounded according to market conventions, such as forward
LIBOR or forward swap rates, can be constructed initially in a
discrete tenor framework. Interpolating interest rates between
maturities in the discrete tenor structure is equivalent to
extending the model to continuous tenor. The present paper sets
forth an alternative way of performing this extension; one which
preserves the Markovian properties of the discrete tenor models
and guarantees the positivity of all interpolated rates.