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arXiv · 1506.00697

Approximations of Bond and Swaption Prices in a Black-Karasi\'{n}ski Model

Andrzej Daniluk·Rafał Muchorski
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Abstract

We derive semi-analytic approximation formulae for bond and swaption prices in a Black-Karasi\'{n}ski interest rate model. Approximations are obtained using a novel technique based on the Karhunen-Lo\`{e}ve expansion. Formulas are easily computable and prove to be very accurate in numerical tests. This makes them useful for numerically efficient calibration of the model.

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Andrzej Daniluk, Rafał Muchorski. 2015-06-01. Approximations of Bond and Swaption Prices in a Black-Karasi\'{n}ski Model. https://arxiv.org/abs/1506.00697

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