The LNVM model is a mixture of lognormal models and the model density is a linear combination of the underlying densities, for instance, log-normal densities. The resulting density of this mixture is no longer log-normal and the model can thereby better fit skew and smile observed in the market. The model is becoming increasingly widely used for interest rate/commodity hybrids.
In this review of the model, I examine the mathematical framework of the model in order to gain an understanding of its key features and characteristics.
Download article here.