We propose a new lower bound for pricing 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 either known in closed form or can be obtained numerically via some efficient procedure. Our lower bound involves the computation of a one dimensional Fourier transform independently of the underlying swap length. Finally the bound can be used as a control variate to reduce the confidence interval in the Monte Carlo simulation. We test our bound on different affine models, also allowing for jumps. The lower bound is found to be accurate and computationally efficient.

Caldana, R., Fusai, G., Gambaro, A. (2016). Accurate pricing of swaptions via Lower Bound. In G. Zambruno, S. Stefani (a cura di), Recent advances in Commodity and Financial Modeling (pp. 1-20). Milano : Springer.

Accurate pricing of swaptions via Lower Bound

GAMBARO, ANNA MARIA
Primo
2016

Abstract

We propose a new lower bound for pricing 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 either known in closed form or can be obtained numerically via some efficient procedure. Our lower bound involves the computation of a one dimensional Fourier transform independently of the underlying swap length. Finally the bound can be used as a control variate to reduce the confidence interval in the Monte Carlo simulation. We test our bound on different affine models, also allowing for jumps. The lower bound is found to be accurate and computationally efficient.
Capitolo o saggio
Swaption, Fourier Transform, lower bound
English
Recent advances in Commodity and Financial Modeling
Caldana, R., Fusai, G., Gambaro, A. (2016). Accurate pricing of swaptions via Lower Bound. In G. Zambruno, S. Stefani (a cura di), Recent advances in Commodity and Financial Modeling (pp. 1-20). Milano : Springer.
Caldana, R; Fusai, G; Gambaro, A
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/132243
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