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Simulating Bermudan Interest Rate Derivatives (1997)
| Citations: | 16 - 1 self |
BibTeX
@MISC{Carr97simulatingbermudan,
author = {Peter Carr and Guang Yang},
title = {Simulating Bermudan Interest Rate Derivatives},
year = {1997}
}
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Abstract
We use simulation to develop a Markov chain approximation for the value of caplets and Bermudan interest rate derivatives in the Market Model developed by Brace, Gatarek, and Musiela (1995) and Jamshidian (1996a,b). One and two factor versions of the Market Model were numerically studied. Our approach yields numerical values for caplets which are in close agreement with analytic solutions. We also provide numerical solutions for several Bermudan swaptions. Peter Carr, Guang Yang Morgan Stanley Open Link Financial 1585 Broadway, 6th Floor 333 Earle Ovington Blvd., 6th Floor New York, NY, 10036 Mitchel Field, NY 11553-3626 (212) 761-7340 (516) 227-6600x209 carrp@ms.com gyang@olf.com Initial Version: April 12, 1997 Current Version: December 3, 2 Simulating Bermudan Interest Rate Derivatives 1. Introduction Term structure modeling is one of the most challenging problems in asset pricing theory. The modern approach has focused on the restrictions imposed by the absence of arbitrage and ...
Keyphrases
bermudan interest rate derivative market model challenging problem close agreement factor version bermudan interest rate com gyang olf numerical solution several bermudan swaptions approach yield numerical value earle ovington blvd asset pricing theory floor new york markov chain approximation mitchel field introduction term structure modeling current version peter carr initial version analytic solution carrp m modern approach
