Affiliation:
1. CARIGE Bank Group, 15 Cassa di Risparmio, 16123 Genoa, Italy
Abstract
This article aims to estimate the fair-value of flexi-forwards, popular financial instruments on currencies, through Leisen–Reimer trees. The first part of paper deals with Markov chains suitable for pricing American options: Cox–Ross–Rubinstein, Jarrow–Rudd, Tian, Leisen–Reimer Trees. The correctness of the implementation in Matlab has been tested by comparing their prices with those obtained through approximated closed-formulas. The second part highlights the better performance of Leisen–Reimer trees in terms of convergence speed and sensitivity. Finally, flexi-forward contracts have been priced by using the numerical methodologies which have outperformed in the previous parts.
Publisher
World Scientific Pub Co Pte Lt
Cited by
4 articles.
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