PDE Valuation

Ingo Beyna
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Ingo Beyna: Centre for Practical Quantitative Finance

Chapter Chapter 7 in Interest Rate Derivatives, 2013, pp 101-130 from Springer

Abstract: Abstract We derive the parabolic PDE implied by the model dynamics and, in combination with terminal conditions, we can price interest rate derivatives. The initial value problem is solved numerically by the sparse grid technique based on a standard Crank Nicolson Finite Difference method with projected successive over-relaxation (PSOR). Implementing a modified sparse grid technique, we can increase the accuracy of the valuation.

Keywords: Terminal Condition; Implied Volatility; Partial Differential Equation; Sparse Grid; Interest Rate Derivative (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-34925-6_7

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DOI: 10.1007/978-3-642-34925-6_7

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