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Pricing of equity swaps in uncertain financial market

Author

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  • Yu, Yongjiu
  • Yang, Xiangfeng
  • Lei, Qing

Abstract

As one of the important derivatives in the over-the-counter market, the scale of equity swaps is expanding. The frequent development of equity swap business makes investors more pursue fairness when signing contracts, hedging risks, and maximizing returns. This paper provides investors with a reference for the pricing of equity swap contracts. Assuming that the stock price follows an uncertain mean-reverting process and the interest rate follows an uncertain Ornstein-Uhlenbeck process, the pricing formulas of equity swaps with a fixed (or floating) interest rate are derived, which enriches the existing financial pricing theory. In addition, this paper also designs the calculation method of the contract price and applies it in conjunction with examples.

Suggested Citation

  • Yu, Yongjiu & Yang, Xiangfeng & Lei, Qing, 2022. "Pricing of equity swaps in uncertain financial market," Chaos, Solitons & Fractals, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:chsofr:v:154:y:2022:i:c:s0960077921010274
    DOI: 10.1016/j.chaos.2021.111673
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    References listed on IDEAS

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    1. Yi Zhang & Jinwu Gao & Zongfei Fu, 2019. "Valuing currency swap contracts in uncertain financial market," Fuzzy Optimization and Decision Making, Springer, vol. 18(1), pages 15-35, March.
    2. Kai Yao & Baoding Liu, 2020. "Parameter estimation in uncertain differential equations," Fuzzy Optimization and Decision Making, Springer, vol. 19(1), pages 1-12, March.
    3. Yiyao Sun & Taoyong Su, 2017. "Mean-reverting stock model with floating interest rate in uncertain environment," Fuzzy Optimization and Decision Making, Springer, vol. 16(2), pages 235-255, June.
    4. Tian, Miao & Yang, Xiangfeng & Zhang, Yi, 2019. "Barrier option pricing of mean-reverting stock model in uncertain environment," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 166(C), pages 126-143.
    5. Chen Xiao & Yi Zhang & Zongfei Fu, 2016. "Valuing Interest Rate Swap Contracts in Uncertain Financial Market," Sustainability, MDPI, vol. 8(11), pages 1-10, November.
    6. Yang, Xiangfeng & Liu, Yuhan & Park, Gyei-Kark, 2020. "Parameter estimation of uncertain differential equation with application to financial market," Chaos, Solitons & Fractals, Elsevier, vol. 139(C).
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    Citations

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    Cited by:

    1. Lu, Jing & Yang, Xiangfeng & Tian, Miao, 2022. "Barrier swaption pricing formulae of mean-reverting model in uncertain environment," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).
    2. Lifen Jia & Linya Zhang & Wei Chen, 2024. "China’s carbon emission allowance prices forecasting and option designing in uncertain environment," Fuzzy Optimization and Decision Making, Springer, vol. 23(4), pages 539-560, December.
    3. Xiangfeng Yang & Hua Ke, 2023. "Uncertain interest rate model for Shanghai interbank offered rate and pricing of American swaption," Fuzzy Optimization and Decision Making, Springer, vol. 22(3), pages 447-462, September.
    4. Haoxuan Li & Xiangfeng Yang & Yaodong Ni, 2024. "Pricing of shout option in uncertain financial market," Fuzzy Optimization and Decision Making, Springer, vol. 23(3), pages 449-467, September.

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