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Barrier swaption pricing formulae of mean-reverting model in uncertain environment

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  • Lu, Jing
  • Yang, Xiangfeng
  • Tian, Miao

Abstract

Barrier swaption is an exotic option, in which the option purchaser has the right to decide whether the swaption will come into effect within a period and it becomes effective (invalid) only when the underlying rises (falls) to the barrier price. This paper studies four kinds of barrier swaptions based on the mean-reverting model, which are up-and-in payer swaption, down-and-in receiver swaption, down-and-out payer swaption, up-and-out receiver swaption, and the price calculation formulae are given. Then, the related parameters are calculated by the minimum cover estimation method. Finally, the examples are given.

Suggested Citation

  • Lu, Jing & Yang, Xiangfeng & Tian, Miao, 2022. "Barrier swaption pricing formulae of mean-reverting model in uncertain environment," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:chsofr:v:160:y:2022:i:c:s0960077922004131
    DOI: 10.1016/j.chaos.2022.112203
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    References listed on IDEAS

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    Cited by:

    1. Xiangfeng Yang & Hua Ke, 2023. "Uncertain interest rate model for Shanghai interbank offered rate and pricing of American swaption," Fuzzy Optimization and Decision Making, Springer, vol. 22(3), pages 447-462, September.

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