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Negative Libor rates in the swap market model

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Abstract

We apply Stroock and Varadhan’s support theorem to show that there is a positive probability that within the Swap Market Model the implied Libor rates become negative in finite time.

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Authors and Affiliations

  1. Department of Mathematics, Imperial College, London, SW7 2AZ, UK

    Mark H. A. Davis & Vicente Mataix-Pastor

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  1. Mark H. A. Davis
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  2. Vicente Mataix-Pastor
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Correspondence to Mark H. A. Davis.

Additional information

Mataix-Pastor received support from the Instituto Credito Oficial (ICO), Spain, and Fundación Caja Madrid.

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Davis, M.H.A., Mataix-Pastor, V. Negative Libor rates in the swap market model. Finance Stoch 11, 181–193 (2007). https://doi.org/10.1007/s00780-006-0032-2

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  • DOI: https://doi.org/10.1007/s00780-006-0032-2

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