Jamshidian Swaption Formula Fine Tuned
4 Pages Posted: 7 Apr 2013 Last revised: 5 May 2013
Date Written: May 4, 2013
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: Suggested Citation