Open AccessChange of Measure in Midcurve Pricing
Author(s) -
Feldman Konstantin
Publication year - 2020
Publication title -
wilmott
Language(s) - English
Resource type - Journals
eISSN - 1541-8286
pISSN - 1540-6962
DOI - 10.1002/wilm.10833
Subject(s) - swap (finance) , skew , econometrics , measure (data warehouse) , annuity , interest rate swap , exponential function , economics , mathematics , computer science , life annuity , finance , telecommunications , mathematical analysis , pension , database
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.