Pricing swaptions on amortising swaps

In this dissertation, two efficient approaches for pricing European options on amortising swaps are explored. The first approach is to decompose the pricing of a European amortising swaption into a series of discount bond options, with an assumption that the interest rate follows a one-factor affine model. The second approach is using a one-dimensional numerical integral technique to approximate the price of European amortising swaption, with an assumption that the interest rate follows an additive two-factor affine model. The efficacy of the two methods was tested by making a comparison with the prices generated using Monte Carlo methods. Two methods were used to accelerate the convergence rate of the Monte Carlo model, a variance reduction method, namely the control variates technique and a method of using deterministic low-discrepancy sequences (also called quasi-Monte Carlo methods).

Grantor dc:publisher.institution

African Institute of Financial Markets and Risk Management

Year dc:date.issued

2018

Author dc:creator

• Masutha, Ndinae Nico

Advisor dc:contributor.advisor

• McWalter, Thomas

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/29514

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/29514