A New Recombination Tree Algorithm for Mean-Reverting Interest-Rate Dynamics ()
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.
Share and Cite:
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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