Back-of-the-envelope swaptions in a very parsimonious multicurve interest rate model

Roberto Baviera

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arXiv · 1712.06466

Back-of-the-envelope swaptions in a very parsimonious multicurve interest rate model

Roberto Baviera

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Abstract

We propose an elementary model to price European physical delivery swaptions in multicurve setting with a simple exact closed formula. The proposed model is very parsimonious: it is a three-parameter multicurve extension of the two-parameter Hull-White (1990) model. The model allows also to obtain simple formulas for all other plain vanilla Interest Rate derivatives. Calibration issues are discussed in detail.

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Roberto Baviera. 2017-12-18. Back-of-the-envelope swaptions in a very parsimonious multicurve interest rate model. https://arxiv.org/abs/1712.06466

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