A New Recombination Tree Algorithm for Mean-Reverting Interest-Rate Dynamics

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DOI: 10.4236/ajcm.2013.34038    4,487 Downloads   6,653 Views  
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ABSTRACT

In light of the fact that no existing tree algorithms can guarantee the recombination property for general Ornstein-Uhlenbeck processes with time-dependent parameters, a new trinomial recombination-tree algorithm is designed in this research. The proposed algorithm enhances the existing mechanisms in interest-rate modelings with the comparisons to [1,2] methodologies, and the proposed framework provides a more efficient way in discrete-time mean-reverting simulations.

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Lin, P. (2013) A New Recombination Tree Algorithm for Mean-Reverting Interest-Rate Dynamics. American Journal of Computational Mathematics, 3, 291-296. doi: 10.4236/ajcm.2013.34038.

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