We present four new methods for approximating the drift in the LIBOR market model when performing very long steps. These are compared with a variety of existing methods, including PPR, Glasserman-Zhao and predictor-corrector. We find that two of them, which use correlation adjustments to better...

We study the simulation of range accrual coupons when valuing callable range accruals in the displaced-diffusion LIBOR market model (DDLMM). We introduce a number of new improvements that lead to significant efficiency improvements, and explain how to apply the adjoint-improved pathwise method...

We present a new non-nested approach for computing additive upper bounds for callable derivatives using Monte Carlo simulation. It relies on the regression of Greeks computed using adjoint methods. We also show that it is possible to early terminate paths once points of optimal exercise have...

We present a fast method to price and hedge CMS spread options in the displaced-diffusion co-initial swap market model. Numerical tests demonstrate that we are able to obtain sufficiently accurate prices and Greeks with computational times measured in milliseconds. Further, we find that CMS...

A new binomial approximation to the Black-Scholes model is introduced. It is shown that, for digital options and vanilla European call and put options, a complete asymptotic expansion of the error in powers of n-1 exists. This is the first binomial tree for which an asymptotic expansion has been...

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalize upper-bound duality results to the case where both parties of a contract have Bermudan optionality. It is shown that the primal-dual simulation method can still be...

We develop a new method for finding upper bounds for Bermudan swaptions in a swap-rate market model. By comparing with lower bounds found by exercise boundary parametrization, we find that the bounds are well within bid-offer spread. As an application, we study the dependence of Bermudan...

We introduce a new calibration methodology that allows perfect fitting of the displaced diffusion LIBOR market model to caplets and co-terminal swaptions, whilst avoiding global optimizations. The approach works by regarding a forward rate as a difference of swap rates and then bootstrapping...

New techniques are introduced for pricing nth to default credit swaps in the Li model. We demonstrate the use of importance sampling to greatly increase the rate of convergence of Monte Carlo simulations for pricing. This technique is combined with the likelihood ratio and pathwise methods for...