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Evolution of Forward Curves in the Heath−Jarrow−Morton Framework by Cubature Method on Wiener Space
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (MAM)ORCID iD: 0000-0001-9303-1196
Mälardalen University, School of Education, Culture and Communication, Educational Sciences and Mathematics. (MAM)ORCID iD: 0000-0002-0139-0747
2020 (English)In: Proceedings of 6th Stochastic Modeling Techniques and Data Analysis International Conference with Demographics Workshop, Online Conference, 2−5 June 2020 / [ed] Christos H. Skiadas, 2020, p. 355-370Conference paper, Published paper (Refereed)
Abstract [en]

The multi-curve extension of Heath−Jarrow−Morton framework is a popular method for pricing interest rate derivatives and overnight indexed swaps in the post-crisis financial market. That is, the set of forward curves is represented as a solution to a boundary value problem for an infinite-dimensional stochastic differential equation. In this paper, we review the post-crisis market proxies for interest rate models. Then, we consider a simple model that belongs to the above framework. This model is driven by a single Wiener process, and we discretize the space of trajectories of its driver by cubature method on Wiener space. After that, we discuss possible methods for numerical solution of the resulting deterministic boundary value problem in the finite dimensional case. Finally, we compare and contrast the obtained numerical solutions of cubature method and classical Monte Carlo simulation.

Place, publisher, year, edition, pages
2020. p. 355-370
Keywords [en]
Heath−Jarrow−Morton framework, forward curves, interest rate derivatives, overnight indexed swaps, cubature method, Monte Carlo simulation
National Category
Probability Theory and Statistics
Research subject
Mathematics/Applied Mathematics
Identifiers
URN: urn:nbn:se:mdh:diva-52170OAI: oai:DiVA.org:mdh-52170DiVA, id: diva2:1484594
Conference
6th Stochastic Modeling Techniques and Data Analysis International Conference with Demographics Workshop
Available from: 2020-10-29 Created: 2020-10-29 Last updated: 2021-12-15Bibliographically approved

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Nohrouzian, HosseinMalyarenko, Anatoliy

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CiteExportLink to record
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