A semi-analytical approach to Canary swaptions in HJM one-factor model

Marc Henrard ()

Finance from EconWPA

Abstract: Leveraging the explicit formula for European swaptions and coupon-bond options in HJM one-factor model, we develop a semi-explicit formula for 2-Bermudan options (also called Canary options). We first extend the European swaption formula to future times. We are able to reduce the valuation of a 2-Bermudan swaption to a single numerical integration at the first expiry date. In that integration the most complex part of the valuation of the embedded European swaptions has been simplified in such a way that it has to be performed only once and not for every point.

Keywords: Bermudan option; swaption; bond option; HJM model; one-factor model; explicit formula; numerical integration. (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-cmp
Date: 2003-10-08, Revised 2004-11-25
Note: Type of Document - LaTeX; prepared on Linux; to print on HP;
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0310008

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