Libor Market Model is a model where Libor forwards have log-normal distribution in their’s respective probability measures (called T-measure)

example of Libor Market Model with just 2 forwards:

is a price at time t of zero-coupon bond paying at

, maturity ]

lets take a numeraire=bond

in LMM forward measure de:

are usually correlated

this drift(t) can be calculated (idea : basel iii basics black scholes c++ calculator counterparty credit risk credit risk credit risk modelling cva derivative accounting foreign exchange risk fx fx forward hedge accounting ias 39 ifrs interest rate hedging interest rate swap interest rate swap valuation libor LMM ois option otc derivatives pca python quantitative risk analysis quantlib simple example swap