Swap Rates Fallback and Term Structure Modelling

14 Pages Posted: 31 May 2023

See all articles by Marc P. A. Henrard

Marc P. A. Henrard

muRisQ Advisory; OpenGamma; University College London - Department of Mathematics

Date Written: May 28, 2023


The ISDA designed fallback for cash-settled swaptions with collateral discounting generates swap rate and term structure dependent exotics. To analyse precisely the fallback impact a full term structure of rates and volatility modelling is required. A recent paper Bang and Daboussi (2022) developed such an approach for swap rate based products like CMS. In this paper we apply those techniques to the valuation and risk management of the instruments resulting from the cash-settled and physical delivery swaption fallback. In doing so, we provide some model validation for the approximations previously proposed in this context.

Keywords: Swap rates, term structure modelling, LIBOR fallback, swaption

JEL Classification: G13, G15, G23, K12

Suggested Citation

Henrard, Marc P. A., Swap Rates Fallback and Term Structure Modelling (May 28, 2023). Available at SSRN: https://ssrn.com/abstract=4461418 or http://dx.doi.org/10.2139/ssrn.4461418

Marc P. A. Henrard (Contact Author)

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