Polynomial algorithms for pricing path dependent interest rate instruments
نویسنده
چکیده
In this paper we study algorithms for pricing of interest rate instruments using a lattice interest model. The price is defined as expected discounted cash flow. If the cash-flows generated by the instrument depend on the full or partial history of the interest rates (path dependent contracts), then the pricing algorithms are typically of exponential complexity. We show that for some models, including product form cash-flows, additive cash-flows, delayed cash-flows and limited path dependent cash-flows, there exist polynomial pricing algorithms. Moreover we demonstrate the performance of these algorithms.
منابع مشابه
Algorithms for pricing path dependent contracts
In this paper we study algorithms for pricing of financial contracts using a lattice process of interest rates. If the cash-flows generated by the contract depend on the history of the interest rates (path dependent contracts), then the pricing algorithms are typically of exponential complexity. We demonstrate that for some models, there exist polynomial algorithms for path dependent contracts....
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