Kernel-based collocation methods for Heath-Jarrow-Morton models with Musiela parametrization

DOI10.1080/17442508.2020.1817024MaRDI QIDQ5086713zbMATH OpenOpenAlexFDO

Authors Yuki Kinoshita, Yumiharu Nakano

Publication date 7 July 2022

Published in Stochastics (Search for Journal in Brave)

Copyright license Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International

Full work available at URL https://arxiv.org/abs/1809.05643

zbMATH Keywords

collocation methodsHeath-Jarrow-Morton modelskernel-based interpolationMusiela parametrization

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35)

Abstract: We propose kernel-based collocation methods for numerical solutions to Heath-Jarrow-Morton models with Musiela parametrization. The methods can be seen as the Euler-Maruyama approximation of some finite dimensional stochastic differential equations, and allow us to compute the derivative prices by the usual Monte Carlo methods. We derive a bound on the rate of convergence under some decay condition on the inverse of the interpolation matrix and some regularity conditions on the volatility functionals.

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Cited in

(2)

• A trustable shape parameter in the kernel-based collocation method with application to pricing financial options
• Numerical integration of the Heath-Jarrow-Morton model of interest rates

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