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1、AccountingandFinance43(2003)231–259BlackwellPublishingLtdSirimonTreepongkarunaetal./AccountingandFinance43(2003)108CowleyRoad,OxfordOX41JFand350MainStreet,MaldenMA02148,USA.???AORIGINALARTICLEAccounting&Finance00810-53910©TheAccountingAssociationofAustraliaan
2、dNewZeland,2003GraphicraftLimited,HongKong432July2003030SirimonTreepongkarunaCFIetal.Short-terminterestratemodels:valuinginterestrate/AccountingandFinance43(2003)derivativesusingaMonte-CarloapproachabSirimonTreepongkaruna,StephenGrayaSchoolofFinanceandApplied
3、Statistics,AustralianNationalUniversitybUQBusinessSchool,UniversityofQueenslandAbstractThispaperprovidesanaccessibledescriptionandseveralexamplesofhowtouseMonte-Carlosimulationtovalueinterestratederivativeswhentheshortratefollowsanarbitrarytimeseriesprocess.W
4、ecomparethevaluesofvariousinterestratederivativesusingclosed-formsolutions(whenavailable),theHullandWhite(1994)trinomialtreeprocedure,andaMonte-Carlosimulationtechnique.Weshowthatthesimulationtechniquecanbeappliedtomorecomplexshortrateprocessesbyexaminingshor
5、tratemodelswherethedynamicsaretoocomplicatedforanytreeorlatticeapproachandclosed-formvaluationformulaeareunavailable.Inapracticalempiricalsetting,weweightheadvantagesanddisadvantagesofthesimulationapproachagainstcompetingapproaches.Keywords:Short-terminterest
6、rates;Monte-Carlosimulation;InterestratederivativesJELclassification:C15,E43,G15.1.IntroductionThelasttwodecadeshaveseenadramaticincreaseintherangeofinterestratederivativesavailableandinthevolumeoftrading.Therehasalsobeenacorrespondingincreaseinthenumberofmode
7、lsthatseektocharacterisethebehaviourofinterestrates.Manymodelscontainacomplexdata-generatingprocessforinterestrates.Formorecomplexmodels,analyticalformulaeforthevalueofinterestratederivativesarenotalwaysavailable.Thisisbecausethedistributionoffutureinterestra
8、tesisoftenunknownwhentheshortratefollowsacomplicatedtimeseriesprocess.ThismeansthatbondpricesandinterestrateWethankTomSmith,RobertFaff,andtwoanonymousrefereesformanyhelpfulcommentsandsugg
