IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v13y2010i06ns0219024910006029.html
   My bibliography  Save this article

Fast And Accurate Pricing And Hedging Of Long-Dated Cms Spread Options

Author

Listed:
  • MARK JOSHI

    (Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia)

  • CHAO YANG

    (Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia)

Abstract

We present a fast method to price and hedge CMS spread options in the displaced-diffusion co-initial swap market model. Numerical tests demonstrate that we are able to obtain sufficiently accurate prices and Greeks with computational times measured in milliseconds. Further, we find that CMS spread options are weakly dependent on the at-the-money Black implied volatility skews.

Suggested Citation

  • Mark Joshi & Chao Yang, 2010. "Fast And Accurate Pricing And Hedging Of Long-Dated Cms Spread Options," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 13(06), pages 839-865.
    • Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:06:n:s0219024910006029
    DOI: 10.1142/S0219024910006029
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219024910006029
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219024910006029?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. T. R. Hurd & Zhuowei Zhou, 2009. "A Fourier transform method for spread option pricing," Papers 0902.3643, arXiv.org.
    2. Joshi, Mark & Yang, Chao, 2011. "Efficient greek estimation in generic swap-rate market models," Algorithmic Finance, IOS Press, vol. 1(1), pages 17-33.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joshi, Mark & Yang, Chao, 2011. "Fast delta computations in the swap-rate market model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 764-775, May.
    2. Cristian Homescu, 2011. "Adjoints and Automatic (Algorithmic) Differentiation in Computational Finance," Papers 1107.1831, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matteo Gardini & Piergiacomo Sabino & Emanuela Sasso, 2021. "Correlating Lévy processes with self-decomposability: applications to energy markets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(2), pages 1253-1280, December.
    2. Ignatieva, Katja & Song, Andrew & Ziveyi, Jonathan, 2016. "Pricing and hedging of guaranteed minimum benefits under regime-switching and stochastic mortality," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 286-300.
    3. Matteo Gardini & Piergiacomo Sabino & Emanuela Sasso, 2020. "Correlating L\'evy processes with Self-Decomposability: Applications to Energy Markets," Papers 2004.04048, arXiv.org, revised Jul 2020.
    4. Cristian Homescu, 2011. "Adjoints and Automatic (Algorithmic) Differentiation in Computational Finance," Papers 1107.1831, arXiv.org.
    5. Fajardo, José & Farias, Aquiles, 2010. "Derivative pricing using multivariate affine generalized hyperbolic distributions," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1607-1617, July.
    6. Matteo Gardini & Piergiacomo Sabino, 2022. "Exchange option pricing under variance gamma-like models," Papers 2207.00453, arXiv.org.
    7. Jonathan Ziveyi, 2011. "The Evaluation of Early Exercise Exotic Options," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 12, July-Dece.
    8. Alexander Kushpel, 2015. "Pricing of high-dimensional options," Papers 1510.07221, arXiv.org.
    9. Joshi, Mark & Yang, Chao, 2011. "Fast delta computations in the swap-rate market model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(5), pages 764-775, May.
    10. Dilip Madan, 2009. "Capital requirements, acceptable risks and profits," Quantitative Finance, Taylor & Francis Journals, vol. 9(7), pages 767-773.
    11. Jonathan Ziveyi, 2011. "The Evaluation of Early Exercise Exotic Options," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2011.
    12. Ernst Eberlein & Kathrin Glau & Antonis Papapantoleon, 2008. "Analysis of Fourier transform valuation formulas and applications," Papers 0809.3405, arXiv.org, revised Sep 2009.
    13. Matteo Gardini & Piergiacomo Sabino & Emanuela Sasso, 2020. "A bivariate Normal Inverse Gaussian process with stochastic delay: efficient simulations and applications to energy markets," Papers 2011.04256, arXiv.org.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:13:y:2010:i:06:n:s0219024910006029. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.