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Zoekopdracht: faculteit: "FEB" en publicatiejaar: "2006"

AuteursD.F. Schrager, A.A.J. Pelsser
TitelPricing Swaptions and Coupon Bond Options in Affine Term Structure Models
TijdschriftMathematical Finance
Jaargang16
Jaar2006
Nummer4
Pagina's673-694
ISSN09601627
FaculteitFaculteit Economie en Bedrijfskunde
Instituut/afd.FEB: Amsterdam School of Economics Research Institute (ASE-RI)
SamenvattingWe propose an approach to find an approximate price of a swaption in affine term
structure models. Our approach is based on the derivation of approximate swap rate
dynamics in which the volatility of the forward swap rate is itself an affine function
of the factors. Hence, we remain in the affine framework and well-known results on
transforms and transform inversion can be used to obtain swaption prices in similar
fashion to zero bond options (i.e., caplets). The method can easily be generalized to
price options on coupon bonds. Computational times compare favorably with other
approximation methods. Numerical results on the quality of the approximation are
excellent. Our results show that in affine models, analogously to the LIBOR market
model, LIBOR and swap rates are driven by approximately the same type of (in this
case affine) dynamics.
KEY WORDS: swaption, coupon bond option, affine term structure models, change of num'eraire,
swap measure, conditional characteristic function, option pricing using transform inversion
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