PDE Valuation of Interest Rate Derivatives:From Theory To Implementation

The Libor Market Model and its several extensions can be seen as state of the art in interest rate modeling. However, due to the ever increasing complexity of interest rate products, the high dimensionality of this approach starts to reach its limits from the computational side. This book is mainly concerned with a class of Markovian Yield Curve Models which try to overcome that disadvantage as they enable a low-dimensional deterministic and fast PDE valuation. The objective of this book is thereby threefold: - To illuminate in a compact way the connection between stochastic processes and partial differential equations as well as review the key features of arbitrage-free pricing. - To embed the here analyzed Markovian model class into the entire framework of interest rate models. - To present and implement robust numerical schemes, which enable an efficient computational treatment of risk-neutral product valuation by using PDE methods.