Efficient swaptions price in Hull-White one factor model

TL;DR

This paper introduces a highly efficient approximation method for pricing European swaptions under the Hull-White one factor model, significantly reducing computation time while maintaining accuracy.

Contribution

The paper proposes a new corrector-type approximation formula that accelerates swaption pricing in the Hull-White model, outperforming existing methods in speed.

Findings

Approximation is over ten times faster than direct pricing.

Approximation is over twenty times faster than Jamshidian trick.

Method maintains high precision with improved efficiency.

Abstract

The Hull-White one factor model is used to price interest rate options. The parameters of the model are often calibrated to simple liquid instruments, in particular European swaptions. It is therefore very important to have very efficient pricing formula for simple instruments. Such a formula is proposed here for European swaption. Based on a very efficient corrector type approximation the approximation is efficient both in term of precision and in term of spped. In our implementation the approximation is more than ten time faster than the direct pricing formula and more than twenty time faster than the Jamshidian trick.