Swaptions: 1 price, 10 deltas, and ... 6 1/2 gammas
In practice the option pricing models are calibrated to market prices of liquid instruments. Consequently for those instruments, all the models give the same price. But the computed risk can be widely different. The note proposes comparison on simple instruments (swaptions) on a simple risk measure (first and second order sensitivity to the underlying yield curve). The main paper conclusion is that the hedging widely (up to 10\% of the underlying risk) between the model, specially with their dynamic. The shape of the smile has also an impact but to a lesser extend.
|Date of creation:||22 Jul 2004|
|Date of revision:||27 Sep 2005|
|Note:||Type of Document - pdf; pages: 13. 13 pages, pdf Draft document, comments welcome|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0407018. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.