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

See all articles by Marc P. A. Henrard

Marc P. A. Henrard

muRisQ Advisory; OpenGamma; University College London - Department of Mathematics

Date Written: January 2008

Abstract

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

Henrard, Marc P. A., Explicit European Swaption Formula in a Separable One-Factor Libor Market Model; Extension to Bond Futures and 2-Bermudan Swaptions (January 2008). Available at SSRN: https://ssrn.com/abstract=1089075 or http://dx.doi.org/10.2139/ssrn.1089075

Marc P. A. Henrard (Contact Author)

muRisQ Advisory ( email )

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OpenGamma ( email )

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University College London - Department of Mathematics ( email )

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London, WC1E 6BT
United Kingdom

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