The title says it all - is it true that European style interest rates options (lets say on LIBOR 3M for the sake of simplicity) with different maturities are free of calendar arbitrage because underlying rates are driven by stochastic processes with different dynamics? Can anyone give a more formal statement and a proof or at least a qualitative explanation of this phenomenon?


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.