The Relative Valuation of Caps and Swaptions : Theory And Empirical Evidence  

Oleh:

Schwartz, Eduardo S. ; Santa-Clara, Pedro ; Longstaff, Francis A.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 56 no. 6 (2001), page 2067-2110.
Topik: valuation; studies; swap arrangements; correlation analysis; valuation; derivatives
Fulltext: p 2067.pdf (777.14KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88.4 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

Although traded as distinct products, caps and swaptions are linked by no arbitrage relations through the correlation structure of interest rates. Using a string market model, we solve for the correlation matrix implied by swaptions and examine the relative valuation of caps and swaptions. We find that swaption prices are generated by four factors and that implied correlations are lower then historical correlations. Long - dates swaptions appear mispriced and there were major pricing distortions during the 1998 hedge - fund crisis. Cap prices periodically deviate significantly form the no - arbitrage values implied by the swaptions market.

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