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CALLABLE SWAPS, SNOWBALLS AND VIDEOGAMES CLAUDIO ALBANESE
 

Summary: CALLABLE SWAPS, SNOWBALLS AND VIDEOGAMES
CLAUDIO ALBANESE
Abstract. Although economically more meaningful than the alternatives,
short rate models have been dismissed for financial engineering applications in
favor of market models as the latter are more flexible and best suited to cluster
computing implementations. In this paper, we argue that the paradigm shift
toward GPU architectures currently taking place in the high performance com-
puting world can potentially change the situation and tilt the balance back in
favor of a new generation of short rate models. We find that operator methods
provide a natural mathematical framework for the implementation of realistic
short rate models that match features of the historical process such as sto-
chastic monetary policy, calibrate well to liquid derivatives and provide new
insights on complex structures. In this paper, we show that callable swaps,
callable range accruals, target redemption notes (TARNs) and various flavors
of snowballs and snowblades can be priced with methods numerically as pre-
cise, fast and stable as the ones based on analytic closed form solutions by
means of BLAS level-3 methods on massively parallel GPU architectures.
1. Introduction
Fixed income derivatives have had a story spanning three decades and represent
the playground where many of the innovations in Mathematical Finance have been

  

Source: Albanese, Claudio - Department of Mathematics, King's College London

 

Collections: Mathematics