Pricing of LIBOR futures by martingale method in Cox-Ingersoll-Ross model |
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| Authors: | Ping Li Peng Shi Guangdong Huang Xiaojun Shi |
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| Institution: | 1.BeiHang University,Beijing,China;2.Northern Illinois University,DeKalb,USA;3.School of Information Engineering,China Geosciences University,Beijing,China;4.BeiHang University,Beijing,China |
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| 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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