Abstract
This paper reformulates the valuation of interest rate swaps, swap leg payments and swap risk measures, all under stochastic interest rates, as a problem of solving a system of linear equations with random perturbations. A sequence of uniform approximations which solves this system is developed and allows for
fast and accurate computation. The proposed method provides a computationally efficient alternative to Monte Carlo based valuations and risk measurement of swaps. This is demonstrated by conducting numerical experiments and so our method provides a potentially important real-time application for analysis and calculation in markets.
fast and accurate computation. The proposed method provides a computationally efficient alternative to Monte Carlo based valuations and risk measurement of swaps. This is demonstrated by conducting numerical experiments and so our method provides a potentially important real-time application for analysis and calculation in markets.
Original language | English |
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Pages (from-to) | 102-111 |
Number of pages | 10 |
Journal | European Journal of Operational Research |
Volume | 228 |
Issue number | 1 |
DOIs | |
Publication status | Published - Jul 2013 |
Keywords
- risk management
- interest rates
- risk analysis