Swaption Pricing in Affine and Other Models

34 Pages Posted: 12 Dec 2011

See all articles by Don H. Kim

Don H. Kim

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2011

Abstract

This paper shows that Singleton and Umantsev (2002)'s method for swaption pricing in affine models can be simplified and extended to other models. Two alternative methods for approximating the option exercise boundary are introduced: one based on the multivariate Taylor series expansion, and the other based on duration-matched zero-coupon bond approximation. Applied to affine models and quadratic-Gaussian models, these methods are found to give accurate swaption prices.

Keywords: swaptions, coupon-bond options, affine models, quadratic-Gaussian models

JEL Classification: C63, G12, G13

Suggested Citation

Kim, Don H., Swaption Pricing in Affine and Other Models (December 12, 2011). Available at SSRN: https://ssrn.com/abstract=1971190 or http://dx.doi.org/10.2139/ssrn.1971190

Don H. Kim (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
242
Abstract Views
1,113
rank
159,264
PlumX Metrics