In this paper, we present an efficient approach to compute the first and the second order price sensitivities in the Heston model using the algorithmic differentiation approach. Issues related to the applicability of the pathwise method are discussed in this paper as most existing numerical...

We introduce a new arbitrage-free interpolation scheme for the displaced-diffusion LIBOR market model. Using this new extension, and the Piterbarg interpolation scheme, we study the simulation of range accrual coupons when valuing callable range accruals in the displaced-diffusion LIBOR market...

This paper derives the pathwise adjoint method for the predictor-corrector drift approximation in the displaced-diffusion LIBOR market model. We present a comparison of the Greeks between log-Euler and predictor-corrector, showing both methods have the same computational order but the latter to...

Although the effect of interest rate stochasticity can safely be ignored for short-dated exchange traded volatility derivatives, this is not the case for the kind of long-dated OTC derivatives often used by insurance companies and other financial institutions. We therefore extend existing...

A key requirement of any equity hybrid derivatives pricing model is the ability to rapidly and accurately calibrate to vanilla option prices. To this end, we present two methods for calibrating a local volatility model under correlated stochastic interest rates. This is achieved by first fitting...

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalise the duality results of Haugh-Kogan/Rogers and Jamshidian to the case where both parties of a contract have Bermudan optionality. It is shown that the...

We present a new method for truncating binomial trees based on using a tolerance to control truncation errors and apply it to the Tian tree together with acceleration techniques of smoothing and Richardson extrapolation. For both the current (based on standard deviations) and the new (based on...

Variations of the binomial tree model are reviewed and extensions to the two most efficient trees studied in a recent literature are proposed. Tian's modified tree is extended to a more general class of tree, and the third order tree is extended to the seventh order tree. Analysis of the error...

Stochastic volatility, local volatility and stochastic interest rates are three of the most important extensions to the standard Black-Scholes framework. Although much work has been done on models incorporating one or two of these extensions, very little has been done on the combination of all...