Throwing away a billion dollars: the cost of suboptimal exercise strategies in the swaptions market

Article Abstract:

Research information regarding the costs of applying single factor exercise strategies to American swap options when the term structure is actually driven by multiple factors is given. The model shows that even single factor models are recalibrated to match the market, the exercise strategies they imply can be suboptimal.

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Factor dependence of Bermudan swaptions: fact or fiction?

Article Abstract:

Research into the effect of interest rate correlation in pricing and exercise of Bermudan swaptions is given. The research shows that Bermudan swaption prices changes only moderately when the number of factors in the underlying interest rate model is increased from one to two.

Legislative Bodies, Finance, Econometric models

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Factor dependence of Bermudan swaptions: fact or fiction?

Article Abstract:

Increasing the number of factors from one to two in models used to determine correlation of interest rate effects with exercise and pricing of Bermudan swaptions.

Securities and Commodity Exchanges, Security and commodity exchanges, Commodity Exchanges, Bermuda, Statistical Data Included, Analysis, Usage, Prices and rates, Options (Finance), Interest rates, Mathematical models, Commodities industry

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