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Fast delta computations in the swap-rate market model

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  • Joshi, Mark
  • Yang, Chao

Abstract

We develop an efficient algorithm to implement the adjoint method that computes sensitivities of an interest rate derivative to different underlying rates in the co-terminal swap-rate market model. The order of computation per step of the new method is shown to be proportional to the number of rates times the number of factors, which is the same as the order in the LIBOR market model.

Suggested Citation

  • Joshi, Mark & Yang, Chao, 2011. "Fast delta computations in the swap-rate market model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 764-775, May.
    • Handle: RePEc:eee:dyncon:v:35:y:2011:i:5:p:764-775
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    References listed on IDEAS

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    7. Mark Joshi & Chao Yang, 2010. "Fast And Accurate Pricing And Hedging Of Long-Dated Cms Spread Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 13(06), pages 839-865.
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    11. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
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    Cited by:

    1. Da Fonseca, José & Gnoatto, Alessandro & Grasselli, Martino, 2013. "A flexible matrix Libor model with smiles," Journal of Economic Dynamics and Control, Elsevier, vol. 37(4), pages 774-793.
    2. Joshi, Mark & Tang, Robert, 2014. "Effective sub-simulation-free upper bounds for the Monte Carlo pricing of callable derivatives and various improvements to existing methodologies," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 25-45.
    3. Jiun Hong Chan and Mark Joshi, 2012. "Optimal Limit Methods for Computing Sensitivities of," Department of Economics - Working Papers Series 1142, The University of Melbourne.
    4. Cristian Homescu, 2011. "Adjoints and Automatic (Algorithmic) Differentiation in Computational Finance," Papers 1107.1831, arXiv.org.

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