Interest-Rate Products Pricing Problems with Uncertain Jump Processes | Zendy

Yiyao Sun | Zendy; Shiqin Liu | Zendy

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Interest-Rate Products Pricing Problems with Uncertain Jump Processes

Author(s) -

Yiyao Sun,

Shiqin Liu

Publication year - 2021

Publication title -

discrete dynamics in nature and society

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.264

H-Index - 39

eISSN - 1607-887X

pISSN - 1026-0226

DOI - 10.1155/2021/7398770

Subject(s) - jump , interest rate , diffusion , jump diffusion , differential (mechanical device) , ideal (ethics) , mathematics , order (exchange) , econometrics , mathematical optimization , mathematical economics , computer science , economics , physics , philosophy , epistemology , finance , quantum mechanics , monetary economics , thermodynamics

Uncertain differential equations (UDEs) with jumps are an essential tool to model the dynamic uncertain systems with dramatic changes. The interest rates, impacted heavily by human uncertainty, are assumed to follow UDEs with jumps in ideal markets. Based on this assumption, two derivatives, namely, interest-rate caps (IRCs) and interest-rate floors (IRFs), are investigated. Some formulas are presented to calculate their prices, which are of too complex forms for calculation in practice. For this reason, numerical algorithms are designed by using the formulas in order to compute the prices of these structured products. Numerical experiments are performed to illustrate the effectiveness and efficiency, which also show the prices of IRCs are strictly increasing with respect to the diffusion parameter while the prices of IRFs are strictly decreasing with respect to the diffusion parameter.

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