School Seminars and Colloquia

Vega Control

Stochastic Processes and Financial Mathematics

by Nick Denson


Institution: The University of Melbourne, Centre for Actuarial Studies
Date: Thu 9th April 2009
Time: 3:15 PM
Location: Russell Love Theatre, Richard Berry bldg, The University of Melbourne

Abstract: The calculation of prices and sensitivities of exotic interest rate derivatives in the LIBOR market model is often very time consuming. To reduce the computational time we present a Markov-functional model as a control variate, building on work by Piterbarg, that works for pricing as well as vega sensitivities. The control variate is very effective, reducing the standard error of a five-factor, twenty-year Bermudan swaption by 10 times, which is an order of 100 times faster.

For More Information: for further details, please contact: Prof Daniel Dufresne: email: dufresne@unimelb.edu.au or Dr Aihua Xia: email: xia@ms.unimelb.edu.au