We extend the LIBOR market model to accommodate the new market practice of using different forward and discount curves in the pricing of interest-rate derivatives. Our extension is based on modeling the joint evolution of forward rates belonging to the discount curve and corresponding spreads...

In the present paper we show how to extend any time-homogeneous short-rate model and analytically tractable short-rate model (such as Vasicek (1977), Cox-Ingersoll-Ross (1985), Dothan (1978)) to a model which can reproduce any observed yield curve, through a procedure that preserves the possible...

In the present paper we construct stock price processes with the same marginal log-normal law as that of a geometric Brownian motion and also with the same transition density (and returns' distributions) between any two instants in a given discrete-time grid. We then illustrate how option prices...

We introduce a general class of analytically tractable models for the dynamics of an asset price based on the assumption that the asset-price density is given by the mixture of known basic densities. We consider the lognormal-mixture model as a fundamental example, and for the first time we...

We introduce a new forward CPI model that is based on a multi-factor volatility structure and leads to SABR-like dynamics for forward inflation rates. Our approach is the first in the financial literature to reconcile zero-coupon and year-on-year quotes, granting, at the same time, a both fast...

Recent empirical studies on interest rate derivatives have shown that the volatility structure of interest rates is frequently humped. Mercurio and Moraleda (1996) and Moraleda and Vorst (1996a) have modelled interest rate dynamics in such a way that humped volatility structures are possible and...

In the present paper we construct stock price processes with the same marginal log-normal law as that of a geometric Brownian motion and also with the same transition density (and returns' distributions) between any two instants in a given discrete-time grid. We then illustrate how option prices...