Multicurve LIBOR market models and drift-free simulation

AbstractSome recent versions of Libor Market Model pay special attention to capturing the basis between different compounding frequencies by using multiple estimation curves jointly with a reference discount one. After reviewing three existing multicurve models in the literature, we propose a fourth one providing several advantages. In practice, the implementation of these models requires a discretization procedure that maintains the properties of the different stochastic dynamics involved in the model. Here, we propose a drift-free simulation technique that guarantees those properties for the four models.