11 Pages Posted: 13 Feb 2004
Date Written: August 1997
This paper presents a framework for the valuation of cancelable cross currency Bermudan swaps. We use a lognormal process for the exchange rate while the domestic & foreign forward rates are assumed to be Gaussian as in Heath et al. (1992). Monte-Carlo simulation is utilized for valuation via an extension to several dimensions of the methodology for simulating American options proposed by Grant et al. (1994). As special cases the model can be used to value cross currency swaps and single exercise Bermudans which can be used for benchmarking purposes.
Keywords: Monte-Carlo, Bermudan, Swaption, Heath-Jarrow-Morton
JEL Classification: C51, C15, G12
Suggested Citation: Suggested Citation