A Control Variate Method for Monte Carlo Simulations of Heath-Jarrow-Morton Models with Jumps

Chiarella, C; Nikitopoulos Sklibosios, C; Schlogl, E

A Control Variate Method for Monte Carlo Simulations of Heath-Jarrow-Morton Models with Jumps

Chiarella, C Nikitopoulos Sklibosios, C

Schlogl, E

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Publisher:: Routledge
Publication Type:: Journal Article
Citation:: Applied Mathematical Finance, 2007, 14 (5), pp. 365 - 399
Issue Date:: 2007-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Nikitopoulos Sklibosios, C https://orcid.org/0000-0002-5879-3731	en_US
dc.contributor.author	Schlogl, E https://orcid.org/0000-0001-8898-6879	en_US
dc.date.issued	2007-01	en_US
dc.identifier.citation	Applied Mathematical Finance, 2007, 14 (5), pp. 365 - 399	en_US
dc.identifier.issn	1350-486X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/3400
dc.description.abstract	This paper examines the pricing of interest rate derivatives when the interest rate dynamics experience infrequent jump shocks modelled as a Poisson process. The pricing framework adapted was developed by Chiarella and Nikitopoulos to provide an extension of the Heath, Jarrow and Morton model to jump-diffusions and achieves Markovian structures under certain volatility specifications. Fourier Transform solutions for the price of a bond option under deterministic volatility specifications are derived and a control variate numerical method is developed under a more general state dependent volatility structure, a case in which closed form solutions are generally not possible. In doing so, a novel perspective is provided on control variate methods by going outside a given complex model to a simpler more tractable setting to provide the control variates.	en_US
dc.publisher	Routledge	en_US
dc.relation.ispartof	Applied Mathematical Finance	en_US
dc.subject.classification	Finance	en_US
dc.title	A Control Variate Method for Monte Carlo Simulations of Heath-Jarrow-Morton Models with Jumps	en_US
dc.type	Journal Article
utslib.citation.volume	5	en_US
utslib.citation.volume	14	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	0103 Numerical and Computational Mathematics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	5	en_US
pubs.volume	14	en_US

Abstract:

This paper examines the pricing of interest rate derivatives when the interest rate dynamics experience infrequent jump shocks modelled as a Poisson process. The pricing framework adapted was developed by Chiarella and Nikitopoulos to provide an extension of the Heath, Jarrow and Morton model to jump-diffusions and achieves Markovian structures under certain volatility specifications. Fourier Transform solutions for the price of a bond option under deterministic volatility specifications are derived and a control variate numerical method is developed under a more general state dependent volatility structure, a case in which closed form solutions are generally not possible. In doing so, a novel perspective is provided on control variate methods by going outside a given complex model to a simpler more tractable setting to provide the control variates.

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http://hdl.handle.net/10453/3400