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Title: Markov-Functional model on a lattice
Keywords: Markov, Functional, Continuous, Time, Lattice, LIBOR
Issue Date: 23-Apr-2008
Citation: PEE MENG HUAT (2008-04-23). Markov-Functional model on a lattice. ScholarBank@NUS Repository.
Abstract: In this thesis, we introduce the Markov-functional interest rate framework, in which the defining characteristic is that the prices of discount bonds can be expressed as a functional of some low-dimensional Markov process. This allows for efficient implementations in this framework while maintaining the ability to calibrate perfectly to the market prices of actively traded instruments such as caps and floors. We then introduce the continuous time lattice method, which discretizes the state space of a stochastic process while maintaining continuous time. Probability kernels become matrices so that evaluating expectations involve finite sums rather than integrals. The continuous time lattice method is applied in the Markov-functional interest rate framework for efficient and exact numerical computations.
Appears in Collections:Master's Theses (Open)

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