Fast And Accurate Pricing And Hedging Of Long-Dated Cms Spread Options
AbstractWe 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.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 13 (2010)
Issue (Month): 06 ()
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Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
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- Cristian Homescu, 2011. "Adjoints and Automatic (Algorithmic) Differentiation in Computational Finance," Papers 1107.1831, arXiv.org.
- 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.
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