Short-term interest rate models: valuing interest rate derivatives using a Monte-Carlo approach
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]
|Collections||ANU Research Publications|
|Source:||Accounting and Finance|
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