FAST AND ACCURATE PRICING AND HEDGING OF LONG-DATED CMS SPREAD OPTIONS

We present a fast method to price and hedge CMS spread options in the displaced-diffusion co-initial swap market model. Numerical tests demonstrate that we are able to obtain sufficiently accurate prices and Greeks with computational times measured in milliseconds. Further, we find that CMS spread options are weakly dependent on the at-the-money Black implied volatility skews.

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Year of publication:	2010
Authors:	JOSHI, MARK ; YANG, CHAO
Published in:	International Journal of Theoretical and Applied Finance (IJTAF). - World Scientific Publishing Co. Pte. Ltd., ISSN 1793-6322. - Vol. 13.2010, 06, p. 839-865
Publisher:	World Scientific Publishing Co. Pte. Ltd.
Subject:	Spread option \| Gaussian quadrature rule \| delta \| vega \| market skew sensitivity

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

Persistent link: https://www.econbiz.de/10008506137