A semi-analytical approach to Canary swaptions in HJM one-factor model
AbstractLeveraging the explicit formula for European swaptions and coupon-bond options in HJM one-factor model, we develop a semi-explicit formula for 2-Bermudan options (also called Canary options). We first extend the European swaption formula to future times. We are able to reduce the valuation of a 2-Bermudan swaption to a single numerical integration at the first expiry date. In that integration the most complex part of the valuation of the embedded European swaptions has been simplified in such a way that it has to be performed only once and not for every point.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0310008.
Date of creation: 08 Oct 2003
Date of revision: 25 Nov 2004
Note: Type of Document - LaTeX; prepared on Linux; to print on HP;
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Bermudan option; swaption; bond option; HJM model; one-factor model; explicit formula; numerical integration.;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-10-12 (All new papers)
- NEP-CFN-2003-10-12 (Corporate Finance)
- NEP-CMP-2003-10-12 (Computational Economics)
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- Marc Henrard, 2005. "Inflation bond option pricing in Jarrow-Yildirim model," Finance, EconWPA 0510027, EconWPA.
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