Re: LMM and finite difference methods

Posted by Naoufel El Bachir on Nov 15, 2005; 12:19pm
URL: http://quantlib.414.s1.nabble.com/LMM-and-finite-difference-methods-tp4222p4231.html

In Fact, I think there has been a few papers dealing with finite differences for LMM.

But apart from the issue of dimensionality, I remember MC has the advantage that you can evolve each forward rate under its martingale measure, while if you are using FDM, you need to stick to one measure which means that your drifts for most forward rates will be quite messy and will probably need some approximations.

 

Naoufel

Here is a silly question. Why is it that LMM methods are used only with
Monte Carlo and not with finite difference methods. I'm probably
missing something very fundamental, but it seems mathematically possible
to write a FDM engine that calculates the forward curve.

So what is it that I don't understand......

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