Valuation of derivatives based on CKLS interest rate models
- Barone-Adesi, Giovanni
- Istituto di finanza (IFin), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
- Allegretto, Walter Department of Mathematics, University of Alberta, Edmonton, Canada
- Dinenis, Elias Centre for Mathematical Trading and Finance, City University Business School, City University, London, UK
- Sorwar, Ghulam Department of Accountancy and Finance, University of Stirling, UK
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1999
36 p.
English
The CKLS (1992) short-term risk-free interest rate process leads to valuation model for both default free bonds and contingent claims that can only be solved numerically for the general case. Valuation equations of this nature in the past have been solved using the Crank Nicholson scheme. In this paper, we introduce a new numerical scheme – the Box method, and compare it with the traditional Crank Nicholson scheme. We find that in specific cases of the CKLS process where analytical prices are available, the new scheme leads to more accurate results than the Crank Nicholson scheme.
- Language
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- English
- Classification
- Economics
- License
- License undefined
- Identifiers
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- RERO DOC 9094
- ARK ark:/12658/srd1318068
- Persistent URL
- https://n2t.net/ark:/12658/srd1318068
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