A fully lognormal Libor market model
In the Gaussian Heath-Jarrow-Morton model, all discount factors are lognormal under allforward measures. The Libor market model does not have this property – only the relevantforward Libor rate is lognormal under a given forward measure. However, all Libor and swaprates are ‘almost’ lognormal. The purpose of this article is to justify such a statement byfinding accurate lognormal approximation of distribution of forward Libor rates and forwardswap rates in the Brace-Gatarek-Musiela model. By Andrzej Daniluk and Dariusz Gatarek
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