# Change of Measure in Midcurve Pricing

## TL;DR

This paper develops measure change formulas and models for midcurve swaption pricing, capturing correlation skew effects in a forward swap annuity measure with stochastic ratios.

## Contribution

It introduces new measure change formulas and models specifically designed for midcurve swaptions with stochastic annuities' ratios.

## Key findings

- Derived measure change formulas for midcurve swaption pricing.
- Constructed linear and exponential terminal swap rate models.
- Captured correlation skew in midcurve swaption prices.

## Abstract

We derive measure change formulae required to price midcurve swaptions in the forward swap annuity measure with stochastic annuities' ratios. We construct the corresponding linear and exponential terminal swap rate pricing models and show how they capture the midcurve swaption correlation skew.