I'm trying to implement an LMM-MultiCurve for caplet pricing following the analytical formula mentioned in this article (pg 20):

https://www.researchgate.net/publication/326012245_LIBOR_market_model_with_multiplicative_basis

However, I didn't get the same results. I think my error comes from the lack of understanding regarding the evolution of LIBOR rate and its tenor structure.

Could anyone give me some insight about it ?

For example a Caplet with Expiry of 3year with tenor = 0.5 has to be priced (following the analytical formula) with the LIBOR rate L(0,2.5,3). Am I getting it right ?

Many thanks for your help.

New contributor
Yassine Q. is a new contributor to this site. Take care in asking for clarification, commenting, and answering. Check out our Code of Conduct.

For example a Caplet with Expiry of 3year with tenor = 0.5 has to be priced (following the analytical formula) with the LIBOR rate L(0,2.5,3). Am I getting it right ?

Thats right. The caplet hast a tenor of half a year and expires in 3 more years, therefore it starts at T =2.5 and ends at T = 3. (Which in this case is the forward rate)

Your Answer

Yassine Q. is a new contributor. Be nice, and check out our Code of Conduct.

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.