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Nunes, J. & Prazeres, P. (2014). Pricing swaptions under multifactor gaussian HJM models. Mathematical Finance. 24 (4), 762-789

J. P. Nunes and P. M. Prazeres,  "Pricing swaptions under multifactor gaussian HJM models", in Mathematical Finance, vol. 24, no. 4, pp. 762-789, 2014

@article{nunes2014_1713998562521,
	author = "Nunes, J. and Prazeres, P.",
	title = "Pricing swaptions under multifactor gaussian HJM models",
	journal = "Mathematical Finance",
	year = "2014",
	volume = "24",
	number = "4",
	doi = "10.1111/mafi.12019",
	pages = "762-789",
	url = "http://onlinelibrary.wiley.com/doi/10.1111/mafi.12019/pdf"
}

TY  - JOUR
TI  - Pricing swaptions under multifactor gaussian HJM models
T2  - Mathematical Finance
VL  - 24
IS  - 4
AU  - Nunes, J.
AU  - Prazeres, P.
PY  - 2014
SP  - 762-789
SN  - 0960-1627
DO  - 10.1111/mafi.12019
UR  - http://onlinelibrary.wiley.com/doi/10.1111/mafi.12019/pdf
AB  - Several approximations have been proposed in the literature for the pricing of European-style swaptions under multifactor term structure models. However, none of them provides an estimate for the inherent approximation error. Until now, only the Edgeworth expansion technique of Collin-Dufresne and Goldstein is able to characterize the order of the approximation error. Under a multifactor HJM Gaussian framework, this paper proposes a new approximation for European-style swaptions, which is able to set bounds on the magnitude of the approximation error and is based on the conditioning approach initiated by Curran and Rogers and Shi. All the proposed pricing bounds will arise as a simple by-product of the Nielsen and Sandmann setup, and will be shown to provide a better accuracy-efficiency trade-off than all the approximations already proposed in the literature.
ER  -