Explicit Caplet Implied Volatilities for Quadratic Term-Structure Models

Matthew Lorig and Natchanon Suaysom

Papers from arXiv.org

Abstract: We derive an explicit asymptotic approximation for implied volatilities of caplets under the assumption that the short-rate is described by a generic quadratic term-structure model. In addition to providing an asymptotic accuracy result, we perform experiments in order to gauge the numerical accuracy of our approximation.

Date: 2022-12
New Economics Papers: this item is included in nep-rmg
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