Swaption Pricing in Affine and Other Models

34 Pages Posted: 12 Dec 2011  

Don H. Kim

Federal Reserve Board - Division of Monetary Affairs

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)

Federal Reserve Board - Division of Monetary Affairs ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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