Contact:Elizna Huysamen
- 021 808 3244
Location: Van der Sterr Building, c/o Victoria & Bosman Street, Stellenbosch
We estimate a short-rate model with expected and unexpected jumps. This is motivated by interestrate
benchmark reform: forward-looking Libor is being replaced by, among other alternatives, a
backward-looking compounding of overnight rates. We price forward- and backward-looking
caplets. Expected jumps lead to significantly time-inhomogeneous option behaviour, particularly for
short-term options linked to a backward-looking benchmark.
