Effective Markovian projection: application to CMS spread options and mid-curve swaptions

DOI10.1080/14697688.2022.2043558MaRDI QIDQ5079407zbMATH OpenOpenAlexFDO

Authors M. Felpel, J. Kienitz, Thomas Andrew McWalter

Publication date 27 May 2022

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1080/14697688.2022.2043558

zbMATH Keywords

approximation formulaeffective PDEMarkovian projectionSABRstochastic volatilityZABR

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Interest rates, asset pricing, etc. (stochastic models) (91G30)

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• MARKOVIAN PROJECTION ONTO A DISPLACED DIFFUSION: GENERIC FORMULAS WITH APPLICATIONS
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• Fast and accurate pricing and hedging of long-dated CMS spread options

Cites work

• A class of degenerate stochastic differential equations with non-Lipschitz coefficients
• An algorithm to determine the parameters ofS_U-curves in the johnson system of probabillity distributions by moment matching^∗
• Dirichlet forms and finite element methods for the SABR model
• Effective stochastic volatility: applications to ZABR-type models
• MARKOVIAN PROJECTION ONTO A DISPLACED DIFFUSION: GENERIC FORMULAS WITH APPLICATIONS
• Mimicking the one-dimensional marginal distributions of processes having an Ito differential
• Probability. Theory and examples.
• Simulation of the CEV process and the local martingale property
• Stochastic differential equations. An introduction with applications.
• SYSTEMS OF FREQUENCY CURVES GENERATED BY METHODS OF TRANSLATION
• The calibration of stochastic local-volatility models: an inverse problem perspective

Cited in

(5)

• Fast and accurate pricing and hedging of long-dated CMS spread options
• Pricing CMS spread options in a Libor market model
• Markovian projection onto a Heston model
• CMS, CMS spreads and similar options in the multi-factor HJM framework
• MARKOVIAN PROJECTION ONTO A DISPLACED DIFFUSION: GENERIC FORMULAS WITH APPLICATIONS

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