Download This PaperAnalytic Swaption Pricing in the Black-Karasinski Model
9 Pages Posted: 14 Oct 2018 Last revised: 2 Feb 2020
Date Written: September 23, 2018
Abstract
We present a Green's function solution to the Black-Karasinski (lognormal) short rate model as a perturbation expansion valid in the limit of small deviations of the rates from the forward curve. We use this to derive analytic formulae for the prices of European swaptions to second order accuracy.
Keywords: Perturbation Methods, Asymptotic Expansion, Hull-White, Black-Karasinski, Short Rate Model, Swaption Pricing, Green’s Function
Suggested Citation: Suggested Citation
Turfus, Colin, Analytic Swaption Pricing in the Black-Karasinski Model (September 23, 2018). Available at SSRN: https://ssrn.com/abstract=3253866 or http://dx.doi.org/10.2139/ssrn.3253866
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