Jamshidian Swaption Formula Fine Tuned

4 Pages Posted: 7 Apr 2013 Last revised: 5 May 2013

Date Written: May 4, 2013

Abstract

The Jamshidian swaption formula a.k.a. the Jamshidian trick reduces the pricing of an european swaption to the pricing of a series of zerbond options. This works in a one factor interest rate model in which zerobond prices are monotonic in the state variable. We review the method and write it down taking into account the start delay of the underlying swap which is usually ignored in the literature.

Keywords: One Factor Model, Hull White Model, Jamshidian Swaption Formula

JEL Classification: C00

Suggested Citation

Caspers, Peter, Jamshidian Swaption Formula Fine Tuned (May 4, 2013). Available at SSRN: https://ssrn.com/abstract=2246054 or http://dx.doi.org/10.2139/ssrn.2246054

Peter Caspers (Contact Author)

Quaternion Risk Management ( email )

54 Fitzwilliam Square North
Dublin, D02X308
Ireland

HOME PAGE: http://www.quaternion.com

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