CMS swaps in separable one-factor Gaussian LLM and HJM model Report as inadecuate




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Abstract

An approximation approach to Constant Maturity Swaps CMS pricing in the separable one-factor Gaussian LLM and HJM models is presented. The approximation used is a Taylor expansion on the swap rate as a function of a random variable which is intuitively similar to a short rate. This approach is different from the standard approach in CMS where the discounting is written as a function of the swap rate. The approximation is very efficient.



Item Type: MPRA Paper -

Institution: Bank for International Settlements-

Original Title: CMS swaps in separable one-factor Gaussian LLM and HJM model-

Language: English-

Keywords: CMS swap; LLM model; HJM model; one factor; approximation-

Subjects: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures PricingC - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation ModelingE - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects-





Author: Henrard, Marc

Source: https://mpra.ub.uni-muenchen.de/3228/







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