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Pricing swaptions on amortising swaps
In this dissertation, two efficient approaches for pricing European options on amortising swaps are explored. The first approach is to decompose the pricing of a European amortising swaption into a series of discount bond options, with an assumption that the interest rate follows a one-factor affine...
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| Format: | Thesis |
| Language: | English |
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African Institute of Financial Markets and Risk Management
2019
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| Summary: | In this dissertation, two efficient approaches for pricing European options on amortising swaps are explored. The first approach is to decompose the pricing of a European amortising swaption into a series of discount bond options, with an assumption that the interest rate follows a one-factor affine model. The second approach is using a one-dimensional numerical integral technique to approximate the price of European amortising swaption, with an assumption that the interest rate follows an additive two-factor affine model. The efficacy of the two methods was tested by making a comparison with the prices generated using Monte Carlo methods. Two methods were used to accelerate the convergence rate of the Monte Carlo model, a variance reduction method, namely the control variates technique and a method of using deterministic low-discrepancy sequences (also called quasi-Monte Carlo methods). |
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