Documentation

This is machine translation

Translated by Microsoft
Mouse over text to see original. Click the button below to return to the English verison of the page.

swaptionbylg2f

Price European swaption using Linear Gaussian two-factor model

Syntax

  • Price = swaptionbylg2f(ZeroCurve,a,b,sigma,eta,rho,
    Strike,ExerciseDate,Maturity)
    example
  • Price = swaptionbylg2f(___, Name,Value)
    example

Description

example

Price = swaptionbylg2f(ZeroCurve,a,b,sigma,eta,rho,
Strike,ExerciseDate,Maturity)
returns the European swaption price for a two-factor additive Gaussian interest-rate model.

example

Price = swaptionbylg2f(___, Name,Value) returns the Eurpoean swaption price for two-factor additive Gaussian interest-rate model using optional name-value pairs.

Examples

collapse all

Define the ZeroCurve, a, b, sigma, eta, and rho parameters to compute the price of the swaption.

Settle = datenum('15-Dec-2007');

ZeroTimes = [3/12 6/12 1 5 7 10 20 30]';
ZeroRates = [0.033 0.034 0.035 0.040 0.042 0.044 0.048 0.0475]';
CurveDates = daysadd(Settle,360*ZeroTimes,1);

irdc = IRDataCurve('Zero',Settle,CurveDates,ZeroRates);

a = .07;
b = .5;
sigma = .01;
eta = .006;
rho = -.7;

Reset = 1;
ExerciseDate = daysadd(Settle,360*5,1);
Maturity = daysadd(ExerciseDate,360*[3;4],1);
Strike = .05;

Price = swaptionbylg2f(irdc,a,b,sigma,eta,rho,Strike,ExerciseDate,Maturity,'Reset',Reset)
Price =

    1.1870
    1.5633

Related Examples

Input Arguments

collapse all

Zero-curve for the Linear Gaussian two-factor model, specified using IRDataCurve or RateSpec.

Data Types: struct

Mean reversion for first factor for the Linear Gaussian two-factor model, specified as a scalar.

Data Types: single | double

Mean reversion for second factor for the Linear Gaussian two-factor model, specified as a scalar.

Data Types: single | double

Volatility for first factor for the Linear Gaussian two-factor model, specified as a scalar.

Data Types: single | double

Volatility for second factor for the Linear Gaussian two-factor model, specified as a scalar.

Data Types: single | double

Scalar correlation of the factors, specified as a scalar.

Data Types: single | double

Swaption strike price, specified as a nonnegative integer using a NumSwaptions-by-1 vector.

Data Types: single | double

Swaption exercise dates, specified as a NumSwaptions-by-1 vector of serial date numbers or date character vectors.

Data Types: single | double | char | cell

Underlying swap maturity date, specified using a NumSwaptions-by-1 vector of serial date numbers or date character vectors.

Data Types: single | double | char | cell

Name-Value Pair Arguments

Specify optional comma-separated pairs of Name,Value arguments. Name is the argument name and Value is the corresponding value. Name must appear inside single quotes (' '). You can specify several name and value pair arguments in any order as Name1,Value1,...,NameN,ValueN.

Example: Price = swaptionbylg2f(irdc,a,b,sigma,eta,rho,Strike,ExerciseDate,Maturity,'Reset',1,'Notional',100,‘OptSpec','call')

collapse all

Frequency of swaption payments per year, specified as positive integers for the values 1,2,4,6,12 in a NumSwaptions-by-1 vector.

Data Types: single | double

Notional value of swaption, specified as a nonnegative integer using a NumSwaptions-by-1 vector of notional amounts.

Data Types: single | double

Option specification for the swaption, specified as a character vector or a NumSwaptions-by-1 cell array of character vectors with a value of 'call' or 'put'.

A ‘call' swaption or Payer swaption allows the option buyer to enter into an interest-rate swap in which the buyer of the option pays the fixed rate and receives the floating rate.

A 'put' swaption or Receiver swaption allows the option buyer to enter into an interest-rate swap in which the buyer of the option receives the fixed rate and pays the floating rate.

Data Types: char | cell

Output Arguments

collapse all

Swaption price, returned as a scalar or an NumSwaptions-by-1 vector.

More About

collapse all

Algorithms

The following defines the swaption price for a two-factor additive Gaussian interest-rate model, given the ZeroCurve, a, b, sigma, eta, and rho parameters:

r(t)=x(t)+y(t)+ϕ(t)

dx(t)=ax(t)dt+σdW1(t),  x(0)=0

dy(t)=by(t)dt+ηdW2(t),  y(0)=0

where dW1(t)dW2(t)=ρdt is a two-dimensional Brownian motion with correlation ρ and ϕ is a function chosen to match the initial zero curve.

References

[1] Brigo, D. and F. Mercurio. Interest Rate Models - Theory and Practice. Springer Finance, 2006.

Introduced in R2013a

Was this topic helpful?