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'Yield Curve modeling with a Lévy’s process.'

Event details of Actuarial Science Seminar: D. Hainaut (K.U. Leuven)
Date 12 December 2008
Time 11:00 -12:00

Yield Curve modeling with a Lévy's process

Abstract. This presentation explores the modeling of interest rate curves by the aid of a Lévy process. In particular, one considers a short rate dynamics driven by a Hull & White model in which the source of randomness is no more a Brownian motion but a normal inverse Gaussian. One obtains a closed form expression for zero coupon bond prices and proposes a pentanomial tree to price more complex derivatives. The efficiency of model is illustrated by a numerical application. In a last section, one investigates how the Fast Fourier Transform can help us to price options on zero coupon bonds.