A new approximate swaption formula in the LIBOR market model: an asymptotic expansion approach

This paper presents a new approximate pricing formula for European payer swaptions in the LIBOR market model using an asymptotic expansion method. The formula is very flexible, since it can be applied to a wide range of volatility functions. The formula is tested with a log-normal volatility function and a modified CEV volatility function. Numerical results show that the proposed approximate formula is more accurate than other approximate formulae.

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Year of publication:	2003
Authors:	Kawai, Atsushi
Published in:	Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 10.2003, 1, p. 49-74
Publisher:	Taylor & Francis Journals
Subject:	Libor Market Model \| Swaptions \| Asymptotic Expansion \| Monte Carlo Simulation \| Volatility Skews

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10005462515