Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.physa.2007.02.054
Title: Pricing American options for interest rate caps and coupon bonds in quantum finance
Authors: Baaquie, B.E. 
Liang, C.
Keywords: American option
Cap and coupon bond option
Quantum finance
Issue Date: 15-Jul-2007
Citation: Baaquie, B.E., Liang, C. (2007-07-15). Pricing American options for interest rate caps and coupon bonds in quantum finance. Physica A: Statistical Mechanics and its Applications 381 (1-2) : 285-316. ScholarBank@NUS Repository. https://doi.org/10.1016/j.physa.2007.02.054
Abstract: American option for interest rate caps and coupon bonds are analyzed in the formalism of quantum finance. Calendar time and future time are discretized to yield a lattice field theory of interest rates that provides an efficient numerical algorithm for evaluating the price of American options. The algorithm is shown to hold over a wide range of strike prices and coupon rates. All the theoretical constraints that American options have to obey are shown to hold for the numerical prices of American interest rate caps and coupon bond options. Non-trivial correlation between the different interest rates are efficiently incorporated in the numerical algorithm. New inequalities are conjectured, based on the results of the numerical study, for American options on interest rate instruments. © 2007 Elsevier B.V. All rights reserved.
Source Title: Physica A: Statistical Mechanics and its Applications
URI: http://scholarbank.nus.edu.sg/handle/10635/97606
ISSN: 03784371
DOI: 10.1016/j.physa.2007.02.054
Appears in Collections:Staff Publications

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