Pricing of range accrual swap in the quantum finance Libor Market Model

Belal E. Baaquie, Xin Du, Pan Tang and Yang Cao

Physica A: Statistical Mechanics and its Applications, 2014, vol. 401, issue C, 182-200

Abstract: We study the range accrual swap in the quantum finance formulation of the Libor Market Model (LMM). It is shown that the formulation can exactly price the path dependent instrument. An approximate price is obtained as an expansion in the volatility of Libor. The Monte Carlo simulation method is used to study the nonlinear domain of the model and determine the range of validity of the approximate formula. The price of accrual swap is analyzed by generating daily sample values by simulating a two dimension Gaussian quantum field.

Keywords: Quantum finance; Range accrual swap; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:401:y:2014:i:c:p:182-200

DOI: 10.1016/j.physa.2014.01.042

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