Quantitative Finance
J-series
Date:
Number:CARF-J-005
Monte Carlo Simulation with an Asymptotic Expansion in HJM Framework
Abstract
We developed a variance reduction method of Monte Carlo simulations as well as an approximation formula based on an asymptotic expansion approach for pricing bond options and swaptions in HJM framework. As a numerical example we applied the technique to a realistic two-factor model and confirmed its validity.