Tid: 15 oktober 2001 kl 1615-1700

Plats : Seminarierummet 3733, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Nikolas Santikos.

Titel: Pricing Spread options on Swaps. (Examensarbete)


In this thesis, interest rate spread options on swaps are priced by using the BGM model. A trader's view on how the market will develop in the future is incorporated in the pricing process. It turns out that there are no closed form solutions for spread options. The price of the option is therefore obtained by using Monte Carlo simulations.

Since this kind of spread options is not yet traded in the Swedish market, the resulting prices are compared to the prices of traded swaptions. The result shows that pricing spread options on swaps in this way makes sense, since the prices of the spread options change correctly according to the correlation between the two swaps.

Two well-known and established methods for valuing general spread options are also studied. These methods are not suited to price interest spread options, since they cannot fully grasp the complexity of the correlated interest rates.

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