Name
Abstract | ||
|---|---|---|
. This paper develops, analyzes, and tests computational procedures for the numerical solution of LIBOR market models with
jumps. We consider, in particular, a class of models in which jumps are driven by marked point processes with intensities
that depend on the LIBOR rates themselves. While this formulation offers some attractive modeling features, it presents a
challenge for computational work. As a first step, we therefore show how to reformulate a term structure model driven by marked
point processes with suitably bounded state-dependent intensities into one driven by a Poisson random measure. This facilitates
the development of discretization schemes because the Poisson random measure can be simulated without discretization error.
Jumps in LIBOR rates are then thinned from the Poisson random measure using state-dependent thinning probabilities. Because
of discontinuities inherent to the thinning process, this procedure falls outside the scope of existing convergence results;
we provide some theoretical support for our method through a result establishing first and second order convergence of schemes
that accommodates thinning but imposes stronger conditions on other problem data. The bias and computational efficiency of
various schemes are compared through numerical experiments. |
Year | DOI | Venue |
|---|---|---|
2003 | 10.1007/s007800200076 | Finance and Stochastics |
Keywords | DocType | Volume |
monte carlo simulation,market models,marked point processes,interest rate models | Journal | 7 |
Issue | ISSN | Citations |
1 | 0949-2984 | 7 |
PageRank | References | Authors |
1.07 | 4 | 2 |
Name | Order | Citations | PageRank |
|---|---|---|---|
| Paul Glasserman | 1 | 496 | 95.86 |
| Nicolas Merener | 2 | 7 | 1.41 |