Approximations of bond and swaption prices in a Black-Karasiński model

DOI10.1142/S0219024916500175zbMATH Open1337.91118arXiv1506.00697OpenAlexW793843256MaRDI QIDQ2806362FDOQ2806362

Authors: Andrzej Daniluk, Rafał Muchorski 

Publication date: 17 May 2016

Published in: International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Abstract: We derive semi-analytic approximation formulae for bond and swaption prices in a Black-Karasi'{n}ski interest rate model. Approximations are obtained using a novel technique based on the Karhunen-Lo`{e}ve expansion. Formulas are easily computable and prove to be very accurate in numerical tests. This makes them useful for numerically efficient calibration of the model.

Full work available at URL: https://arxiv.org/abs/1506.00697

Recommendations

• An effective approximation for zero-coupon bonds and Arrow-Debreu prices in the Black-Karasinski model
• Approximate Formulas for Zero‐coupon Bonds
• scientific article; zbMATH DE number 6290829
• A new approximate swaption formula in the LIBOR market model: an asymptotic expansion approach
• Approximate pricing of swaptions in affine and quadratic models

zbMATH Keywords

stochastic processesderivative pricingKarhunen-Loève expansionBlack-Karasiński model

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Cites Work

• Title not available (Why is that?)
• Approximate Formulas for Zero‐coupon Bonds
• THE EXPONENT EXPANSION: AN EFFECTIVE APPROXIMATION OF TRANSITION PROBABILITIES OF DIFFUSION PROCESSES AND PRICING KERNELS OF FINANCIAL DERIVATIVES

Cited In (6)

• A path-integral approximation for non-linear diffusions
• Closed-form Arrow-Debreu pricing for the Hull-White short rate model
• An effective approximation for zero-coupon bonds and Arrow-Debreu prices in the Black-Karasinski model
• Title not available (Why is that?)
• Small-time asymptotics for Gaussian self-similar stochastic volatility models
• Approximate Formulas for Zero‐coupon Bonds

This page was built for publication: Approximations of bond and swaption prices in a Black-Karasiński model

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2806362)