The Mathematical Institute, University of Oxford, Eprints Archive

Markov Functional Market Model nd Standard Market Model

Sun, Tiantang (2008) Markov Functional Market Model nd Standard Market Model. Masters thesis, University of Oxford.

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Abstract

The introduction of so called Market Models (BGM) in 1990s has developed
the world of interest rate modelling into a fresh period. The obvious
advantages of the market model have generated a vast amount of research
on the market model and recently a new model, called Markov functional
market model, has been developed and is becoming increasingly popular.
To be clearer between them, the former is called standard market model
in this paper.

Both standard market models and Markov functional market models are
practically popular and the aim here is to explain theoretically how each
of them works in practice. Particularly, implementation of the standard
market model has to rely on advanced numerical techniques since Monte
Carlo simulation does not work well on path-dependent derivatives. This
is where the strength of the Longstaff-Schwartz algorithm comes in. The
successful application of the Longstaff-Schwartz algorithm with the standard
market model, more or less, adds another weight to the fact that the
Longstaff-Schwartz algorithm is extensively applied in practice.

Item Type:Thesis (Masters)
Subjects:H - N > Mathematics education
Research Groups:Mathematical and Computational Finance Group
ID Code:704
Deposited By:Laura Auger
Deposited On:02 Jul 2008
Last Modified:20 Jul 2009 14:23

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