Approximated pricing of swaptions in general interest rate models

Post date: 16-Sep-2014 08:06:22

2 OTTOBRE 2014, ore 15.00, Sala Riunioni Primo Piano

Relatrice: Dott.ssa Anna Maria Gambaro University of Milano Bicocca

Titolo: Approximated pricing of swaptions in general interest rate models

Abstract:

We propose a new lower bound on the prices of European-style swaptions for a wide class of interest rate models. This method is applicable whenever the joint characteristic function of the state variables is known in closed form or could be easily obtained with numerical ODE solution method. Our algorithm involves the computation of one dimensional Fourier transform indipendently from the swap length. Moreover the bound could be used as a control variable to reduce confidence interval of the Monte Carlo tecnique. We test our new lower bound on different affine models and on 2-factor quadratic gaussian model and the method is found to be fast and accurate.

Co-Autori:

Gianluca Fusai, Ruggero Caldana. Università del Piemonte Orientale