Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

6-2002

Publication Source

Methodology and Computing in Applied Probability

Volume

4

Issue

2

Start Page

181

Last Page

193

DOI

10.1023/A:1020693608365

Abstract

The traditional use of LIBOR futures prices to obtain surrogates for the Eurodollar forward rates is proved to yield a systematic bias in the pricing of Eurodollar swaps when one assumes that the yield curve is well described by the Heath-Jarrow-Morton model. The resulting theoretical inequality is consistent with the empirical observations of Burghardt and Hoskins (1995), and it provide a theoretical basis for price anomalies that are suggested by more recent empirical data.

Copyright/Permission Statement

The final publication is available at Springer via http://dx.doi.org/10.1023/A:1020693608365

Keywords

Heath-Jarrow-Morton model, HJM model, interest rates, LIBOR, futures prices, arbitrage, pricing, swap, equivalent martingale measures

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Date Posted: 27 November 2017

This document has been peer reviewed.