Analytic Approximations for Valuing Ratchet Caps in the LIBOR Market Model

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This paper provides two analytic approximation formulas for pricing ratchet caps in the LIBOR market model. The approximate values of a ratchet caplet are represented as sums of Black’s (1976) regular caplet prices. So, these pricing formulas are extremely fast and easily implemented. The formulas can be easily extended to incorporate multiple factors. Illustrative numerical examples are provided and comparisons with results from Monte-Carlo implementation of the LIBOR market model are presented.
Publisher
Korean Securities Association
Issue Date
2003
Language
ENG
Citation

Fourth Proceedings of Korean Securities Association

URI
http://hdl.handle.net/10203/5411
Appears in Collection
KGSF-Conference Papers(학술회의논문)
Files in This Item
2003-172.pdf(656.02 kB)Download

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