Change of Measure in Midcurve Pricing
Pricing of Securities
2020-08-25 v2 Mathematical Finance
Abstract
We derive measure change formulae required to price midcurve swaptions in the forward swap annuity measure with stochastic annuities' ratios. We construct the corresponding linear and exponential terminal swap rate pricing models and show how they capture the midcurve swaption correlation skew.
Keywords
Cite
@article{arxiv.1812.07415,
title = {Change of Measure in Midcurve Pricing},
author = {K. E. Feldman},
journal= {arXiv preprint arXiv:1812.07415},
year = {2020}
}
Comments
Quantitative Finance