Economics at your fingertips  

About Long-Term Cross-Currency Bermuda Swaption Pricing

Bünyamin Erkan () and Jean-Luc Prigent ()
Additional contact information
Bünyamin Erkan: Banque de France

Computational Economics, 2020, vol. 56, issue 1, No 13, 239-262

Abstract: Abstract This paper details first the pricing process of a Bermuda swaption and, in a second step, the pricing of a cross-currency Bermuda swaption from a computational point of view. Our aim is to examine the lengthy process that provides a Bermuda swaption price with special attention to the tests used for assessing the coherence of the price. We only consider long-term derivatives that lead to issues related to missing data and require calibration adjustment. We also deal with the sensitivity of the cross-currency swaption price to the choice of model. The standard model to price this kind of options is a 3-factors hybrid model based on the Libor Market Model that typically combines the domestic market, the foreign market and the foreign exchange market. We study the impact of each one of these stochastic factors on the price of a long-term cross-currency Bermuda swaption. In particular, this study illustrates the relation between the cross-currency product and the volatility of each one of the three markets involved (domestic, foreign and the foreign exchange market).

Keywords: Option pricing; Bermuda swaption; Cross-currency; Long-term derivative; Missing data; Calibration (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-019-09899-7

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2021-12-23
Handle: RePEc:kap:compec:v:56:y:2020:i:1:d:10.1007_s10614-019-09899-7