Cash-Settled Swaptions: How Wrong are We?
15 Pages Posted: 7 Nov 2010 Last revised: 12 Mar 2011
Date Written: November 6, 2010
The pricing of the European cash-settled swaptions is analysed. The standard market formula results are compared to results obtained from different models. Significant discrepancies are observed, justifying the title.
Keywords: Swaption, Cash Settlement, Delivery, Arbitrage, Annuity, Extended Vasicek Model, G2 Model, Libor Market Model
JEL Classification: G13, E43, C63
Suggested Citation: Suggested Citation