Valuation of certain CMS spreads

Ping Wu () and Robert J. Elliott ()
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Ping Wu: Nanjing Audit University
Robert J. Elliott: University of Calgary

Financial Markets and Portfolio Management, 2017, vol. 31, issue 4, No 2, 445-467

Abstract: Abstract In this paper, we derive an approximate lognormal process for the swap rate under the multifactor LIBOR market model using a Levy approach. Using the approximate dynamics for the swap rate, the constant maturity swap spread digital range notes with different strike rates are valued in analytic and semi-analytic form. The CMS spread digital range notes are widely traded in the marketplace, or embedded in structure notes.

Keywords: LIBOR market model; Levy approach; CMS spread digital range notes (search for similar items in EconPapers)
JEL-codes: C63 G13 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11408-017-0301-4

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