Bounding Bermudan swaptions in a swap-rate market model
AbstractWe develop a new method for finding upper bounds for Bermudan swaptions in a swap-rate market model. By comparing with lower bounds found by exercise boundary parametrization, we find that the bounds are well within bid-offer spread. As an application, we study the dependence of Bermudan swaption prices on the number of instantaneous factors used in the model. We also establish an equivalence with LIBOR market models and show that virtually identical lower bounds for Bermudan swaptions are obtained.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 2 (2002)
Issue (Month): 5 ()
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ERIM Report Series Research in Management
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