PDEs for pricing interest rate derivatives under the new generalized Forward Market Model (FMM)
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PDEs for pricing interest rate derivatives under the new generalized Forward Market Model (FMM)Fecha
2024-09-01Cita bibliográfica
J. G. López-Salas, S. Pérez-Rodríguez, y C. Vázquez, «PDEs for pricing interest rate derivatives under the new generalized Forward Market Model (FMM)», Computers & Mathematics with Applications, vol. 169, pp. 88-98, sep. 2024, doi: 10.1016/j.camwa.2024.06.010.
Resumen
[Abstract]: In this article we derive partial differential equations (PDEs) for pricing interest rate derivatives under the generalized Forward Market Model (FMM) recently presented by A. Lyashenko and F. Mercurio in [1]
to model the dynamics of the Risk Free Rates (RFRs) that are replacing the traditional IBOR rates in the financial industry. Moreover, for the numerical solution of the proposed PDEs formulation, we develop some adaptations of the finite differences methods developed in
[2]
that are very suitable to treat the presence of spatial mixed derivatives. This work is the first article in the literature where PDE methods are used to value RFR derivatives. Additionally, Monte Carlo-based methods will be designed and the results are compared with those obtained by the numerical solution of PDEs.
Palabras clave
IBOR replacement
Generalized forward market model
Forward rates
Finite differences
AMFR-W methods
Generalized forward market model
Forward rates
Finite differences
AMFR-W methods
Versión del editor
Derechos
Atribución-NoComercial-SinDerivadas 3.0 España
ISSN
1873-7668
0898-1221
0898-1221