A volatility decomposition control variate technique for Monte Carlo simulations of Heath Jarrow Morton models

Chiarella, C; Clewlow, L; Musti, S

A volatility decomposition control variate technique for Monte Carlo simulations of Heath Jarrow Morton models

Chiarella, C Clewlow, L Musti, S

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Publication Type:: Journal Article
Citation:: European Journal of Operational Research, 2005, 161 (2), pp. 325 - 336
Issue Date:: 2005-03-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Clewlow, L	en_US
dc.contributor.author	Musti, S	en_US
dc.date.issued	2005-03-01	en_US
dc.identifier.citation	European Journal of Operational Research, 2005, 161 (2), pp. 325 - 336	en_US
dc.identifier.issn	0377-2217	en_US
dc.identifier.uri	http://hdl.handle.net/10453/8313
dc.description.abstract	The aim of this work is to develop a simulation approach to the yield curve evolution in the Heath, Jarrow and Morton [Econometrica 60 (1) (1992) 77] framework. The stochastic quantities considered as affecting the forward rate volatility function are the spot rate and the forward rate. A decomposition of the volatility function into a Hull and White [Rev. Financial Stud. 3 (1990) 573] volatility and a remainder allows us to develop an efficient Control Variate Method that makes use of the closed form solution of the Hull and White call option. This technique considerably speeds up the simulation algorithm to approximate call option values with Monte Carlo simulation. © 2003 Elsevier B.V. All rights reserved.	en_US
dc.relation	http://purl.org/au-research/grants/arc/A00103854
dc.relation.ispartof	European Journal of Operational Research	en_US
dc.relation.isbasedon	10.1016/j.ejor.2003.08.045	en_US
dc.subject.classification	Operations Research	en_US
dc.title	A volatility decomposition control variate technique for Monte Carlo simulations of Heath Jarrow Morton models	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	161	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
dc.location.activity	ISI:000224656400003	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	open_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	161	en_US

Abstract:

The aim of this work is to develop a simulation approach to the yield curve evolution in the Heath, Jarrow and Morton [Econometrica 60 (1) (1992) 77] framework. The stochastic quantities considered as affecting the forward rate volatility function are the spot rate and the forward rate. A decomposition of the volatility function into a Hull and White [Rev. Financial Stud. 3 (1990) 573] volatility and a remainder allows us to develop an efficient Control Variate Method that makes use of the closed form solution of the Hull and White call option. This technique considerably speeds up the simulation algorithm to approximate call option values with Monte Carlo simulation. © 2003 Elsevier B.V. All rights reserved.

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http://hdl.handle.net/10453/8313