Cash-Settled Swaptions: How Wrong are We?

15 Pages Posted: 7 Nov 2010 Last revised: 12 Mar 2011

See all articles by Marc P. A. Henrard

Marc P. A. Henrard

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

Date Written: November 6, 2010

Abstract

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

Henrard, Marc P. A., Cash-Settled Swaptions: How Wrong are We? (November 6, 2010). Available at SSRN: https://ssrn.com/abstract=1703846 or http://dx.doi.org/10.2139/ssrn.1703846

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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