This document serves as the online appendix to McWalter et al. [2017]. It provides efficient matrix implementations for both vector quantization and the generalized recursive marginal quantization, which allows for the implementation of the higher-order discretization schemes presented in the...

Recursive marginal quantization (RMQ) allows the construction of optimal discrete grids for approximating solutions to stochastic differential equations in d-dimensions. Product Markovian quantization (PMQ) reduces this problem to d one-dimensional quantization problems by recursively...

We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a given point in time (calibration error) and the model risk due to the recalibration of model parameters (in contradiction to the model assumptions). In this context, we use...

Quantization techniques have been applied in many challenging finance applications, including pricing claims with path dependence and early exercise features, stochastic optimal control, filtering problems and efficient calibration of large derivative books. Recursive Marginal Quantization of...

Interest-rate volatility is known to be positively level dependent, i.e., to correlate positively with interest rate levels. However, recent research has provided compelling evidence that as interest rates rise, the amount of level dependence decreases. We advance this line of research by...

This paper examines a simple basis risk model based on correlated geometric Brownian motions. We apply quadratic criteria to minimize basis risk and hedge in an optimal manner. Initially, we derive the Follmer-Schweizer decomposition of a European claim. This allows pricing and hedging under the...

This paper examines a simple basis risk model based on correlated geometric Brownian motions. We apply quadratic criteria to minimize basis risk and hedge in an optimal manner. Initially, we derive the Föllmer-Schweizer decomposition for a European claim. This allows pricing and hedging under...

This paper examines a simple basis risk model based on correlated geometric Brownian motions. We apply quadratic criteria to minimize basis risk and hedge in an optimal manner. Initially, we derive the Föllmer–Schweizer decomposition for a European claim. This allows pricing and hedging under...

This book on Interest Rate Derivatives has three parts. The first part is on financial products and extends the range of products considered in Interest Rate Derivatives Explained I. In particular we consider callable products such as Bermudan swaptions or exotic derivatives. The second part is...