We test seven term structure models in the Heath-Jarrow-Morton (1992) class in order to find the best representation of the Libor rate in interest rate markets after the credit crunch of 2007. The Libor rate is considered as a risky rate, subject to the credit risk of a generic counterparty...

A great deal of recent literature discusses the major anomalies that have appeared in the interest rate market following the credit crunch in August 2007. There were major consequences with regard to the development of spreads between quantities that had remained the same until then. In...