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Fast and accurate exercise policies for Bermudan swaptions in the LIBOR market model

Karlsson, Patrik LU ; Jain, Shashi and Oosterlee, Cornelis W. (2016) In International Journal of Financial Engineering 3(1).
Abstract
This paper describes an American Monte Carlo approach for obtaining fast and accurate exercise policies for pricing of callable LIBOR Exotics (e.g., Bermudan swaptions) in the LIBOR market model using the Stochastic Grid Bundling Method (SGBM). SGBM is a bundling and regression based Monte Carlo method where the continuation value is projected onto a space where the distribution is known. We also demonstrate an algorithm to obtain accurate and tight lower–upper bound values without the need for nested Monte Carlo simulations.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Applied mathematical finance, Bermudan swaptions, Computational finance, Derivative pricing models, Interest rate modelling, LIBOR Market Model
in
International Journal of Financial Engineering
volume
3
issue
1
pages
22 pages
external identifiers
  • wos:000382936300005
DOI
10.1142/S2424786316500055
language
Unknown
LU publication?
yes
id
9e295e42-35f8-4385-8259-15d54d041161
alternative location
http://www.worldscientific.com/doi/abs/10.1142/S2424786316500055
date added to LUP
2016-10-19 21:08:28
date last changed
2016-12-14 11:47:41
@article{9e295e42-35f8-4385-8259-15d54d041161,
  abstract     = {This paper describes an American Monte Carlo approach for obtaining fast and accurate exercise policies for pricing of callable LIBOR Exotics (e.g., Bermudan swaptions) in the LIBOR market model using the Stochastic Grid Bundling Method (SGBM). SGBM is a bundling and regression based Monte Carlo method where the continuation value is projected onto a space where the distribution is known. We also demonstrate an algorithm to obtain accurate and tight lower–upper bound values without the need for nested Monte Carlo simulations.},
  articleno    = {1650005},
  author       = {Karlsson, Patrik and Jain, Shashi and Oosterlee, Cornelis W.},
  keyword      = {Applied mathematical finance,Bermudan swaptions,Computational finance,Derivative pricing models,Interest rate modelling,LIBOR Market Model},
  language     = {und},
  month        = {05},
  number       = {1},
  pages        = {22},
  series       = {International Journal of Financial Engineering},
  title        = {Fast and accurate exercise policies for Bermudan swaptions in the LIBOR market model},
  url          = {http://dx.doi.org/10.1142/S2424786316500055},
  volume       = {3},
  year         = {2016},
}