The Implied Jump Risk of LIBOR Rates

• Main Authors: LIM, Kian Guan, TING, Christopher, WARACHKA, Mitch
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: Federal reserve; Jump-diffusion; LIBOR; Macroeconomic announcements; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2637; https://ink.library.smu.edu.sg/context/lkcsb_research/article/3636/viewcontent/ImpliedJumpRiskLIBORrates_2005.pdf
• Institution: Singapore Management University

This paper examines implied parameters from options on LIBOR futures. Jump-diffusion models are found to offer superior in-sample and out-of-sample performance when compared to their pure diffusion counterpart. The need to incorporate stochastic jump magnitudes into LIBOR dynamics is also documented...