Explicit European Swaption Formula in a Separable One-Factor Libor Market Model; Extension to Bond Futures and 2-Bermudan Swaptions
9 Pages Posted: 4 Feb 2008
Date Written: January 2008
In the framework of the Libor Market Model (LMM) an explicit pricing formula is obtained for European swaptions. The LLM used is a displaced diffusion also called Bond Market Model (BMM). The results are similar to the one obtained for the Gaussian HJM. The extension to bond futures and 2-Bermuda swaptions is also provided.
Keywords: Explicit formula, Libor market model, separability condition, swaption, bond futures
JEL Classification: G13, E43, C63
Suggested Citation: Suggested Citation