Change of Measure in Midcurve Pricing

K. E. Feldman

Papers from arXiv.org

Abstract: We derive measure change formulae required to price midcurve swaptions in the forward swap annuity measure with stochastic annuities' ratios. We construct the corresponding linear and exponential terminal swap rate pricing models and show how they capture the midcurve swaption correlation skew.

Date: 2018-12, Revised 2019-06
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Published in Wilmott, Volume 2020, Issue106, March 2020, Pages 76-81

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