A Comparison of Control Variate Methods for Pricing Interest Rate Derivatives in the LIBOR Market Model

Abstract

This paper studies the control variate method for pricing interest rate derivatives driven by the LIBOR market model. Several control variates are constructed based on distinctive approximations for the LIBOR market model. Numerical results show the great efficiency of our methods. The idea in this paper can also be extended to price other interest rate derivatives under the LIBOR market model, such as Swaptions, Caps, some path dependent interest rate derivatives, and so forth.