In this dissertation, two efficient approaches for pricing European options on amortising swaps are explored. The first approach is to decompose the pricing of a European amortising swaption into a series of discount bond options, with an assumption that the interest rate follows a one-factor affine model. The second approach is using a one-dimensional numerical integral technique to approximate the price of European amortising swaption, with an assumption that the interest rate follows an additive two-factor affine model. The efficacy of the two methods was tested by making a comparison with the prices generated using Monte Carlo methods. Two methods were used to accelerate the convergence rate of the Monte Carlo model, a variance reduction method, namely the control variates technique and a method of using deterministic low-discrepancy sequences (also called quasi-Monte Carlo methods).
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/29514 |
| Date | 14 February 2019 |
| Creators | Masutha, Ndinae Nico |
| Contributors | McWalter, Thomas |
| Publisher | University of Cape Town, Faculty of Commerce, African Institute of Financial Markets and Risk Management |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Masters Thesis, Masters, MPhil |
| Format | application/pdf |
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