LIBOR Market Model

Explains the LIBOR market model. Contains a step by step derivation of the drift under the forward and the spot measure, and also shows how the multi-dimensional LIBOR market model can be represented in terms of Variance-Covariance or Variance-Correlation matrices. Here is the outline of the content by timeline:

2:07/22:39: Illustrate what is being modelled in the LIBOR market model
4:00/22:39: How to define the Zero Coupon and Bank Account in the LIBOR framework
05:22/22:39: How to construct continuous process from discrete LIBORs
06:47/22:39: Link LIBOR to traded asset so that we can use the general valuation formula
07:43/22:39: Determine the dynamics of T period LIBOR under the T-forward measure
08:54/22:39: Determine the dynamics of other LIBORs under the T-forward measure
14:25/22:39: Determine the dynamics of LIBORs under the Spot measure
16:52/22:39: Explain multidimensional LIBOR, and how it can expressed in terms of Variance-Covariance (Variance-correlation) matrices

Note: For the purists, we use q(t) to represent both the index and the time value (e.g., 3 and T_3), but the context shall make it abundantly clear which one is meant. It is just that T_{q(t)} takes too much space.