A Comparison of Control Variate Methods for Pricing Interest Rate Derivatives in the LIBOR Market Model

Xu Chenglong (), Guan Wei () and Liang Yijuan ()
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Xu Chenglong: Department of Mathematics, Tongji University, Shanghai200092, China
Guan Wei: Shanghai Pudong Development Bank Shanghai Branch, Shanghai200120, China
Liang Yijuan: College of Economics and Management, Southwest University, Chongqing400715, China

Journal of Systems Science and Information, 2015, vol. 3, issue 1, 48-58

Abstract: This paper studies the control variate method for pricing interest rate derivatives driven by the LIBOR market model. Several control variates are constructed based on distinctive approximations for the LIBOR market model. Numerical results show the great efficiency of our methods. The idea in this paper can also be extended to price other interest rate derivatives under the LIBOR market model, such as Swaptions, Caps, some path dependent interest rate derivatives, and so forth.

Keywords: LIBOR market model; Monte Carlo simulations; control variate (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:3:y:2015:i:1:p:48-58:n:5

DOI: 10.1515/JSSI-2015-0048

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