EFFICIENT PIECEWISE TREES FOR THE GENERALIZED SKEW VASICEK MODEL WITH DISCONTINUOUS DRIFT



ZHUO, XIAOYANG and MENOUKEU-PAMEN, OLIVIER
(2017) EFFICIENT PIECEWISE TREES FOR THE GENERALIZED SKEW VASICEK MODEL WITH DISCONTINUOUS DRIFT. International Journal of Theoretical and Applied Finance, 20 (04). 1750028 - 1750028.

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Abstract

<jats:p> In this paper, we explore two new tree lattice methods, the piecewise binomial tree and the piecewise trinomial tree for both the bond prices and European/American bond option prices assuming that the short rate is given by a generalized skew Vasicek model with discontinuous drift coefficient. These methods build nonuniform jump size piecewise binomial/trinomial tree based on a tractable piecewise process, which is derived from the original process according to a transform. Numerical experiments of bonds and European/American bond options show that our approaches are efficient as well as reveal several price features of our model. </jats:p>

Item Type: Article
Depositing User: Symplectic Admin
Date Deposited: 12 Jun 2017 06:38
Last Modified: 24 Nov 2019 08:10
DOI: 10.1142/s0219024917500285
URI: http://livrepository.liverpool.ac.uk/id/eprint/3007908

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