Pricing of bond options. Unspanned stochastic volatility and random field models. (Q946627)

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Pricing of bond options. Unspanned stochastic volatility and random field models.
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    Pricing of bond options. Unspanned stochastic volatility and random field models. (English)
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    24 September 2008
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    The author studies unspanned stochastic volatility (USV) as well as Random Fields (RF) to model the dynamics of entire yield curves. The USV models postulate a correlation between the bond price dynamics and the subordinated stochastic volatility process, while the RF models allow for a deterministic correlation structure between bond prices of different terms. The author shows how fast and accurate pricing can be achieved by either running a Fractional Fourier Transform or by an Integrated Edgeworth Expansion approach. The author also include the relevant Matlab code.
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    interest rate models
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    mathematical finance
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    derivatives
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    options
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    bonds
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    random fields
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    Edgeworth expansion
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