Pricing of range accrual swap in the quantum finance Libor Market Model
نویسندگان
چکیده
منابع مشابه
Generic market models
Currently, there are two market models for valuation and risk management of interest rate derivatives, the LIBOR and swap market models. In this paper, we introduce arbitrage-free constant maturity swap (CMS) market models and generic market models featuring forward rates that span periods other than the classical LIBOR and swap periods. We develop generic expressions for the drift terms occurr...
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A self-contained theory is presented for pricing and hedging LIBOR and swap derivatives by arbitrage. Appropriate payoff homogeneity and measurability conditions are identified which guarantee that a given payoff can be attained by a self-financing trading strategy. LIBOR and swap derivatives satisfy this condition, implying they can be priced and hedged with a finite number of zero-coupon bond...
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We present two approximation methods for pricing of CMS spread options in Libor market models. Both approaches are based on approximating the underlying swap rates with lognormal processes under suitable measures. The rst method is derived straightforwardly from the Libor market model. The second one uses a convexity adjustment technique under a linear swap model assumption. A numerical study d...
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In this paper we empirically analyze and compare the Libor and Swap Market Models, developed by Brace, Gatarek, and Musiela (1997) and Jamshidian (1997), using paneldata on prices of US caplets and swaptions. A Libor Market Model can directly be calibrated to observed prices of caplets, whereas a Swap Market Model is calibrated to a certain set of swaption prices. For both one-factor and two-fa...
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