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Mixed Monte Carlo in the foreign exchange market
The stochastic differential equation (SDE) describing the spot FX rate is of central importance to modelling FX derivatives. A Monte Carlo estimate of the discounted individual payoffs of FX derivatives is taken to arrive at the price, provided there does not exist a closed form solution for the pri...
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| Format: | Thesis |
| Language: | English |
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Division of Actuarial Science
2017
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| _version_ | 1867613190878134273 |
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| access_status_str | Open Access |
| author | Baker, Christopher |
| author2 | McWalter, Thomas |
| author_browse | Baker, Christopher McWalter, Thomas |
| author_facet | McWalter, Thomas Baker, Christopher |
| author_sort | Baker, Christopher |
| collection | Thesis |
| description | The stochastic differential equation (SDE) describing the spot FX rate is of central importance to modelling FX derivatives. A Monte Carlo estimate of the discounted individual payoffs of FX derivatives is taken to arrive at the price, provided there does not exist a closed form solution for the price. One propagates the FX spot rate through time under risk-neutral dynamics to realise the before-mentioned payoffs. A drawback to Monte Carlo becomes evident when the model dynamics become more complicated, such as when more dimensions are added to the dynamics of the model. These additional dimensions can be stochastic volatility and/or stochastic domestic and foreign short rates. This dissertation describes the calibration of such a model using mixed Monte Carlo, as described in Cozma and Reisinger (2015), to both model-generated and market data. Profit and loss analysis of hedging FX derivatives using the mixed Monte Carlo method is conducted when hedging against both model-generated and market data . |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/25193 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:13.078Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2017 |
| publishDateRange | 2017 |
| publishDateSort | 2017 |
| publisher | Division of Actuarial Science |
| publisherStr | Division of Actuarial Science |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/25193 Mixed Monte Carlo in the foreign exchange market Baker, Christopher McWalter, Thomas Searle Silverman, Searle Maze, Sheldon Mathematical Finance The stochastic differential equation (SDE) describing the spot FX rate is of central importance to modelling FX derivatives. A Monte Carlo estimate of the discounted individual payoffs of FX derivatives is taken to arrive at the price, provided there does not exist a closed form solution for the price. One propagates the FX spot rate through time under risk-neutral dynamics to realise the before-mentioned payoffs. A drawback to Monte Carlo becomes evident when the model dynamics become more complicated, such as when more dimensions are added to the dynamics of the model. These additional dimensions can be stochastic volatility and/or stochastic domestic and foreign short rates. This dissertation describes the calibration of such a model using mixed Monte Carlo, as described in Cozma and Reisinger (2015), to both model-generated and market data. Profit and loss analysis of hedging FX derivatives using the mixed Monte Carlo method is conducted when hedging against both model-generated and market data . 2017-09-14T12:22:30Z 2017-09-14T12:22:30Z 2017 Master Thesis Masters MPhil http://hdl.handle.net/11427/25193 eng application/pdf Division of Actuarial Science Faculty of Commerce University of Cape Town |
| spellingShingle | Mathematical Finance Baker, Christopher Mixed Monte Carlo in the foreign exchange market |
| thesis_degree_str | Master's |
| title | Mixed Monte Carlo in the foreign exchange market |
| title_full | Mixed Monte Carlo in the foreign exchange market |
| title_fullStr | Mixed Monte Carlo in the foreign exchange market |
| title_full_unstemmed | Mixed Monte Carlo in the foreign exchange market |
| title_short | Mixed Monte Carlo in the foreign exchange market |
| title_sort | mixed monte carlo in the foreign exchange market |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/25193 |
| work_keys_str_mv | AT bakerchristopher mixedmontecarlointheforeignexchangemarket |