ABSTRACT
London Interbank Offer Rates (LIBOR) is a set of reference interest rates at which banks lend unsecured loans to other banks in the London wholesale money market. This chapter describes the major instruments of the LIBOR market, before introducing the LIBOR market model, namely, once the dominant model for LIBOR derivatives. The LIBOR market began when US dollar were deposited into non-US banks in Europe. LIBOR is a set of reference interest rates at which banks lend unsecured loans to other banks in the London wholesale money market. Eurodollar futures contracts are perhaps the most popular futures contracts in the global capital markets. The LIBOR market is known for its vivid financial innovations due to relatively few regulations and the high level of investor participation. Many interesting exotic derivative products were first invented in this market, and these products have gained reputations as “LIBOR exotics.”.
