Yasuhiro Tamba () (Graduate School of Economics, Osaka University)
Abstract
This paper presents the tree construction approach to pricing a Bermudan swaption. The Bermudan swaption is an option, which at each date in a schedule of exercise dates gives the holder the right to enter an interest swap, provided that this right has not been exercised at any previous time in the schedule. Assuming a common diffusion short rate dynamics, the Hull-White model, we propose a dynamic programming approach for their risk neutral evaluation. This framework is suited to a calibration from an observed initial yield curve and market price data of discount bonds and European swaptions.
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Publisher Info
Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number
05-03.