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Capped equity swaps under the double‐jump stochastic volatility model with stochastic interest rates
Author(s) -
Guo JiaHau
Publication year - 2011
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20470
Subject(s) - notional amount , stochastic volatility , interest rate swap , economics , equity (law) , jump , counterparty , econometrics , derivative (finance) , volatility (finance) , jump diffusion , short rate model , interest rate , financial economics , mathematical economics , mathematics , actuarial science , monetary economics , credit risk , finance , law , physics , quantum mechanics , political science
This study proposes a double‐jump stochastic volatility model with stochastic interest rates to price capped equity swaps and other multi‐period derivative securities. Closed‐form solutions for capped equity swaps with a fixed or variable notional principle are derived. In addition, numerical examples are employed to analyze comparative statics properties, counterparty risks, and the dynamics of the forward smile. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:340–370, 2011