Caplet Pricing with Backward-Looking Rates
6 Pages Posted: 8 Mar 2020 Last revised: 28 Sep 2020
Date Written: January 1, 2020
We consider the Hull-White short rate model and extend the known closed-form pricing kernel to include the integrated short rate as a separate independent variable, applying it to cap/floor pricing.
Keywords: Hull-White, short rate model, pricing kernel, LIBOR replacement, backward-looking rates, compounded rates
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