Caplet pricing in affine models for alternative risk-free rates
Pricing of Securities
2023-01-24 v3 Mathematical Finance
Abstract
Alternative risk-free rates (RFRs) play a central role in the reform of interest rate benchmarks. We study a model for RFRs driven by a general affine process. Under minimal assumptions, we derive explicit valuation formulas for forward-looking and backward-looking caplets/floorlets, term-basis caplets as well as 1-month and 3-month RFR futures contracts.
Keywords
Cite
@article{arxiv.2202.09116,
title = {Caplet pricing in affine models for alternative risk-free rates},
author = {Claudio Fontana},
journal= {arXiv preprint arXiv:2202.09116},
year = {2023}
}
Comments
19 pages (a shortened version is forthcoming in SIAM J. Financ. Math.)