Swaption Prices in HJM model. Nonparametric fit
V.M. Belyaev
TL;DR
This paper derives closed-form swaption pricing formulas within the HJM model and demonstrates their effectiveness for nonparametric forward volatility fitting, enabling arbitrage detection.
Contribution
It introduces a novel closed-form formula for swaption prices in the HJM model and applies nonparametric fitting for forward volatility.
Findings
Formulas work well in practice
Effective nonparametric fit of forward volatility
Potential to identify arbitrage opportunities
Abstract
Closed form formulas for swaption prices in HJM model are derived. These formulas are used for nonparametric fit of deterministic forward volatility. It is demonstrated that this formula and non-parametric fit works very well and can be used to identify arbitrage opportunities
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Taxonomy
TopicsStochastic processes and financial applications · Credit Risk and Financial Regulations · Financial Markets and Investment Strategies