Please use this identifier to cite or link to this item: https://doi.org/10.1016/j.physa.2010.08.046
Title: Simulation of coupon bond European and barrier options in quantum finance
Authors: Baaquie, B.E. 
Pan, T. 
Keywords: Barrier option
Coupon bond option
Monte Carlo simulation
Quantum finance
Issue Date: 15-Jan-2010
Citation: Baaquie, B.E., Pan, T. (2010-01-15). Simulation of coupon bond European and barrier options in quantum finance. Physica A: Statistical Mechanics and its Applications 390 (2) : 263-289. ScholarBank@NUS Repository. https://doi.org/10.1016/j.physa.2010.08.046
Abstract: Coupon bond European and barrier options are studied in the framework of quantum finance. The prices of European and barrier options are analyzed by generating sample values of the forward interest rates f(t,x) using a two-dimensional Gaussian quantum field A(t,x). The strong correlations of forward interest rates are described by the stiff propagator of the quantum field A(t,x). Using the Cholesky decomposition, A(t,x) is expressed in terms of white noise. The simulation results for European coupon bond and barrier options are compared with approximate formulas, which are obtained as power series in the volatility of the forward interest rates. The simulation shows that the simulated price deviates from the approximate value for large volatilities. The numerical algorithm is flexible and can be used for pricing any kind of option. It is shown that the three-factor HJM model can be derived from the quantum finance formulation. © 2010 Elsevier B.V. All rights reserved.
Source Title: Physica A: Statistical Mechanics and its Applications
URI: http://scholarbank.nus.edu.sg/handle/10635/97930
ISSN: 03784371
DOI: 10.1016/j.physa.2010.08.046
Appears in Collections:Staff Publications

Show full item record
Files in This Item:
There are no files associated with this item.

SCOPUSTM   
Citations

4
checked on Jul 14, 2018

WEB OF SCIENCETM
Citations

4
checked on Jun 18, 2018

Page view(s)

26
checked on May 25, 2018

Google ScholarTM

Check

Altmetric


Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.