UCLouvain Finance Seminar: Ernst Eberlein

Multiple Curve Interest Rate Modeling Allowing for Negative Rates

Ernst Eberlein, University of Freiburg

A multiple curve forward process as well as a multiple curve forward rate model is developed. In both approaches time-inhomogeneous Levy processes are used as drivers. Negative interest rates are taken into account in a natural way. We derive valuation formulas for standard interest rate financial products such as caps, floors, swaptions and digital interest rate options. A number of calibration results is presented where we also consider data in the setting of a two price economy, thus exploiting explicitly bid and ask prices.

This is joint work with Christoph Gerhart and Zorana Grbac.