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Pricing of defaultable securities under stochastic interest rate

Le : 21/01/2008 10h00
Par : Dr Nino Kordzakhia (Macquarie University, Sydney)
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Résumé : The problem of pricing of contingent claims is reduced to an evaluation of boundary crossing probabilities for Brownian Motion with stochastic boundaries. The interest rate process is assumed to be modeled via Ornstein-Uhlenbeck process. The numerical algorithm and its rate of convergence for calculation of the boundary crossing probabilities based on a piece-wise approximation of boundaries will be discussed. The application of results will be illustrated via pricing of discretely monitored barrier options.