Abstract
This paper considers the pricing of LIBOR futures in the Cox-Ingersoll-Ross (CIR) model under Pozdnyakov and Steele (2004)’s martingale framework for futures prices. Under the CIR model for short term interest rate, we prove that there exists a unique futures price process associated with the terminal value and the standard financial market, and that this unique futures price process has a martingale representation. Moreover, a general closed-form pricing formula for LIBOR futures contracts is obtained in the CIR model.
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This research is supported by the National Natural Science Foundation of China under Grant Nos. 70971006, 70501003, 70831001, and the National Basic Research Program of China (973 Program) under Grant No. 2007CB814906.
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Li, P., Shi, P., Huang, G. et al. Pricing of LIBOR futures by martingale method in Cox-Ingersoll-Ross model. J Syst Sci Complex 23, 261–269 (2010). https://doi.org/10.1007/s11424-010-6042-3
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DOI: https://doi.org/10.1007/s11424-010-6042-3