Asset pricing theory and the LIBOR market model

Abstract

The first part of this thesis is a general presentation of no-arbitrage asset pricing theory in continuous time. The standard mathematical formulations of models with Brownian motion as random variables is presented, as well as the two approaches of partial dierential equations and martingale methods. The second part narrows in on a particular application of this theory: The market models of interest rates. The LIBOR and swap market model are presented together with limitations on extension to multiple currencies.