IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0407018.html
   My bibliography  Save this paper

Swaptions: 1 price, 10 deltas, and ... 6 1/2 gammas

Author

Listed:
  • Marc Henrard

    (Bank for International Settlements)

Abstract

In practice the option pricing models are calibrated to market prices of liquid instruments. Consequently for those instruments, all the models give the same price. But the computed risk can be widely different. The note proposes comparison on simple instruments (swaptions) on a simple risk measure (first and second order sensitivity to the underlying yield curve). The main paper conclusion is that the hedging widely (up to 10\% of the underlying risk) between the model, specially with their dynamic. The shape of the smile has also an impact but to a lesser extend.

Suggested Citation

  • Marc Henrard, 2004. "Swaptions: 1 price, 10 deltas, and ... 6 1/2 gammas," Finance 0407018, University Library of Munich, Germany, revised 27 Sep 2005.
    • Handle: RePEc:wpa:wuwpfi:0407018
    Note: Type of Document - pdf; pages: 13. 13 pages, pdf Draft document, comments welcome
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0407/0407018.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wolfgang Kluge & Antonis Papapantoleon, 2009. "On the valuation of compositions in Levy term structure models," Quantitative Finance, Taylor & Francis Journals, vol. 9(8), pages 951-959.
    2. Wolfgang Kluge & Antonis Papapantoleon, 2009. "On the valuation of compositions in L\'evy term structure models," Papers 0902.3456, arXiv.org.
    3. Henrard, Marc, 2006. "Bonds futures and their options: more than the cheapest-to-deliver; quality option and marginning," MPRA Paper 2001, University Library of Munich, Germany.
    4. Marc Henrard, 2005. "Libor Market Model and Gaussian HJM explicit approaches to option on composition," Finance 0511016, University Library of Munich, Germany, revised 07 Dec 2005.
    5. Linus Kaisajuntti & Joanne Kennedy, 2014. "Stochastic volatility for interest rate derivatives," Quantitative Finance, Taylor & Francis Journals, vol. 14(3), pages 457-480, March.

    More about this item

    Keywords

    Swaption; delta; hedging; in-the-model; out-of-the-model sensitivity; models difference;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0407018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.