A new approximate swaption formula in the LIBOR market model: an asymptotic expansion approach
AbstractThis paper presents a new approximate pricing formula for European payer swaptions in the LIBOR market model using an asymptotic expansion method. The formula is very flexible, since it can be applied to a wide range of volatility functions. The formula is tested with a log-normal volatility function and a modified CEV volatility function. Numerical results show that the proposed approximate formula is more accurate than other approximate formulae.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.
Volume (Year): 10 (2003)
Issue (Month): 1 ()
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