Valuation of CMS Spread Options with Nonzero Strike Rates in the LIBOR Market Model

2011 ◽  
pp. 110812220354001
Author(s):  
Ting-Pin Wu ◽  
Son-Nan Chen
Keyword(s):  
Market Model ◽  
Libor Market Model ◽  
Spread Options

PRICING CMS SPREAD OPTIONS IN A LIBOR MARKET MODEL

2010 ◽  
Vol 13 (01) ◽  
pp. 45-62 ◽  
Author(s):  
DENIS BELOMESTNY ◽  
ANASTASIA KOLODKO ◽  
JOHN SCHOENMAKERS
Keyword(s):  
Numerical Study ◽  
Market Model ◽  
Approximation Methods ◽  
Option Prices ◽  
Model Assumption ◽  
Market Models ◽  
Libor Market Model ◽  
Spread Options ◽  
Swap Model ◽  
Spread Option

We present two approximation methods for the pricing of CMS spread options in Libor market models. Both approaches are based on approximating the underlying swap rates with lognormal processes under suitable measures. The first method is derived straightforwardly from the Libor market model. The second one uses a convexity adjustment technique under a linear swap model assumption. A numerical study demonstrates that both methods provide satisfactory approximations of spread option prices and can be used for calibration of a Libor market model to the CMS spread option market.

Comparing Discretization of the LIBOR Market Model in the Spot Measure

2008 ◽  
Author(s):  
Christopher Beveridge ◽  
Nick Denson ◽  
Mark S. Joshi
Keyword(s):  
Market Model ◽  
Libor Market Model
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