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Short-term interest rate models: valuing interest rate derivatives using a Monte-Carlo approach

Treepongkaruna, Sirimon; Gray, Stephen

Description

This paper provides an accessible description and several examples of how to use Monte-Carlo simulation to value interest rate derivatives when the short rate follows an arbitrary time series process. We compare the values of various interest rate derivatives using closed-form solutions (when available), the Hull and White (1994) trinomial tree procedure, and a Monte-Carlo simulation technique. We show that the simulation technique can be applied to more complex short rate processes by...[Show more]

CollectionsANU Research Publications
Date published: 2003
Type: Journal article
URI: http://hdl.handle.net/1885/74835
Source: Accounting and Finance
DOI: 10.1111/1467-629X.00090

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