TY - JOUR
T1 - CMS Spread Options Pricing under the CHH Model
AU - Chen, Ren Raw
AU - Li, Xiaowei
AU - Hsieh, Pei Lin
N1 - Publisher Copyright:
© 2023 The authors.
PY - 2023/3
Y1 - 2023/3
N2 - Based on the Chen, Hsieh, and Huang (2017) interest rate model, this research explores the analytical approach for pricing CMS spread options. We first derive a complex joint density for two swap rates composed of sequential forward rates and approximate the joint density by bivariate normals. After applying the methods of Pearson (1995) and Li, Deng, and Zhou (2008), we obtain two analytical pricing models and examine their accuracy using numerical analysis. Finally, we empirically show the predictive power of the implied volatility of CMS options for future economic states.
AB - Based on the Chen, Hsieh, and Huang (2017) interest rate model, this research explores the analytical approach for pricing CMS spread options. We first derive a complex joint density for two swap rates composed of sequential forward rates and approximate the joint density by bivariate normals. After applying the methods of Pearson (1995) and Li, Deng, and Zhou (2008), we obtain two analytical pricing models and examine their accuracy using numerical analysis. Finally, we empirically show the predictive power of the implied volatility of CMS options for future economic states.
UR - http://www.scopus.com/inward/record.url?scp=85165304824&partnerID=8YFLogxK
U2 - 10.3905/jfi.2023.1.155
DO - 10.3905/jfi.2023.1.155
M3 - 期刊論文
AN - SCOPUS:85165304824
SN - 1059-8596
VL - 32
SP - 83
EP - 107
JO - Journal of Fixed Income
JF - Journal of Fixed Income
IS - 4
ER -