In this paper we present a PDE formulation for the ratchet cap pricing problem. The underlying LIBOR interest rates are assumed to follow the LIBOR market model. For this PDE problem the existence and uniqueness of solution are obtained in the classical framework of uniformly parabolic PDEs in terms of a sequence of nested Cauchy prob- lems. Moreover, this approach allows to obtain a new numerical method based on the approximation by computable fundamental solutions of constant coecient operators. This method is compared with classical Monte Carlo simulation and a proposed charac- teristics Crank-Nicolson time discretization combined with nite elements strategy

Mathematical analysis and numerical methods for a PDE model governing a rachet-cap pricing in the Libor Market Model

PASCUCCI, ANDREA;
2011

Abstract

In this paper we present a PDE formulation for the ratchet cap pricing problem. The underlying LIBOR interest rates are assumed to follow the LIBOR market model. For this PDE problem the existence and uniqueness of solution are obtained in the classical framework of uniformly parabolic PDEs in terms of a sequence of nested Cauchy prob- lems. Moreover, this approach allows to obtain a new numerical method based on the approximation by computable fundamental solutions of constant coecient operators. This method is compared with classical Monte Carlo simulation and a proposed charac- teristics Crank-Nicolson time discretization combined with nite elements strategy
File in questo prodotto:
Eventuali allegati, non sono esposti

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/95910
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 6
  • ???jsp.display-item.citation.isi??? 5
social impact