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Título

PDE formulation and resolution of a single factor Heath-Jarrow-Morton model with stochastic volatility

AutorValero, Eusebio; Torrealba, Manuel; Lacasa, Lucas ; Fraysse, François
Palabras claveQuantitative finance
Computational finance
PDE stochastic formulation
Fecha de publicación22-feb-2010
EditorConsejo Superior de Investigaciones Científicas (España)
CitaciónPublicaciones IFISC (2010)
ResumenThis paper considers the single factor Heath-Jarrow-Morton model for the interest rate curve with stochastic volatility. While from a financial point of view, the natural formulation of this model is in terms of stochastic differential equations, the Feynman-Kac theorem allows us to map the stochastic problem into a partial differential system. Accordingly, we numerically solve a three dimensional version of the HJM model, making use of finite difference schemes for the spatial discretization and Crank-Nicholson schemes for the temporal discretization, as well as Alternating Direction Implicit schemes for increasing the computational efficiency. Several numerical considerations such as convergence criteria or computation time are analyzed and discussed.
Descripción27 pages, 16 figures.-- Preprint submitted to Journal of Computational and Applied Mathematics; Elsevier Editorial System(tm) for Journal of Computational and Applied Mathematics Manuscript Draft (Elsevier).
Versión del editorhttp://ifisc.uib.es/publications/publication-detail.php?indice=2089
URIhttp://hdl.handle.net/10261/25720
Aparece en las colecciones: (IFISC) Artículos
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