1999
DOI: 10.1007/978-1-4757-3007-4_8
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The Valuation of Cross-Currency Interest-Sensitive Claims with Application to “Diff” Swaps

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Cited by 3 publications
(5 citation statements)
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“…No similar characterisation is known for the case of mixed derivatives, so in x5 w e determine the critical time step experimentally | we nd that 38 is very nearly su cient in practice, since the coe cients of the mixed derivatives are relatively small. In any case, we have to take the numberof time steps M of the order of the square of the numberof space steps, so that the operation count for the explicit method is On 5 . The approximation is accurate to second order in space and rst order in time, inherited from the nite di erence approximations 32.…”
Section: : 38mentioning
confidence: 99%
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“…No similar characterisation is known for the case of mixed derivatives, so in x5 w e determine the critical time step experimentally | we nd that 38 is very nearly su cient in practice, since the coe cients of the mixed derivatives are relatively small. In any case, we have to take the numberof time steps M of the order of the square of the numberof space steps, so that the operation count for the explicit method is On 5 . The approximation is accurate to second order in space and rst order in time, inherited from the nite di erence approximations 32.…”
Section: : 38mentioning
confidence: 99%
“…At any instant the state variables are correlated Gaussian with mean zero, so that we may nd a con dence interval about zero in IR 3 for their position at any future time, which we take to beour truncated state variable region. We take as our con dence level three standard deviations 5 , where the required variances are given by Lemma 1, and the resulting monotonic increasing time-dependent con dence intervals are plotted for specimen data in Figure 4. For simplicity in computing the bounds in a period, we take as our standard deviation that at the end of the last non-trivial period, t N,1 .…”
mentioning
confidence: 99%
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“…In this section, following Babbs 1990Babbs ,1994aBabbs ,1994b , we consider the numerical valuation of a cross-currency interest rate-sensitive 1 0 y ear di erential di swap deal with 3-monthly deferred payments in terms of current rate di erentials at successive intervals, together with the option to terminate the deal at payment dates at the cost of a penalty payment in foreign currency. The valuation of this multistage swap deal stretches current PDE and computer technology, i n v olving, as it does, three underlying correlated stochastic state variables, namely`domestic' and`foreign' rates and the exchange rate, plus the time variable, and with multiple decision points.…”
Section: Valuation Of Complex DI Erential Swapsmentioning
confidence: 99%
“…Vasicek model Babbs 1990Babbs ,1993Babbs ,1994 x6 presents numerical results on a 10 year quarterly terminable contract. To our knowledge this represents the rst numerical valuation of a cross-currency derivative based on a full term structure-consistent model.…”
Section: Introductionmentioning
confidence: 99%