CIRJE-J-112. Takahashi Akihiko and Shuichiro Matsushima, "Monte Carlo Simulation with an Asymptotic Expansion in HJM Framework", May 2004.

We developed a variance reduction method of Monte Carlo simulations as well as an approximation formula based on an asymptotic expansion approach for pricing bond options and swaptions in HJM framework. As a numerical example we applied the technique to a realistic two-factor model and confirmed its validity.