Efficient and exact simulation of the Gaussian affine interest rate models

Vladimir Ostrovski ()
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Vladimir Ostrovski: Economic Scenarios and Valuation Team, Talanx Asset Management, Talanx Group Charles-de-Gaulle-Platz 1, 50679 Cologne, Germany

International Journal of Financial Engineering (IJFE), 2016, vol. 03, issue 02, 1-11

Abstract: The Gaussian affine interest rate models are widely used in the financial industry for pricing, hedging and also risk management purposes. We consider the multifactor models with time dependent parameters. Usually the models are simulated using some appropriate discretization schema because the joint distribution of the stochastic and discounting factors is not known. We derive the exact joint conditional distribution of the stochastic and discounting factors. Additionally we show how an efficient and exact Monte Carlo simulation of the Gaussian affine interest rate models could be performed.

Keywords: Affine interest rate models; conditional distribution; Hull–White; G2++; simulation; exact; efficient (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S2424786316500092

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