Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Subscribe Now
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Derivatives
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Subscribe Now
  • Log in
The Journal of Derivatives

The Journal of Derivatives

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter
Primary Article

Pricing Swaptions Within an Affine Framework

Pierre Collin-Dufresne and Robert S. Goldstein
The Journal of Derivatives Fall 2002, 10 (1) 9-26; DOI: https://doi.org/10.3905/jod.2002.319187
Pierre Collin-Dufresne
An assistant professor at the Graduate School of Industrial Administration, Carnegie Mellon University, in Pittsburgh, PA.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: dufresne@andrew.cmu.edu
Robert S. Goldstein
An associate professor at the Olin School of Business, Washington University of St. Louis, in St. Louis, MO.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: goldstein@olin.wustl.edu
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Abstract

Valuation theory for the most widely used interest rate derivatives, such as swaps, bond options, and caps and floors, is highly developed. But adapting the theory for use in the field is not trivial. Several stochastic factors at least are needed to approximate the empirical term structure, with which the model must be consistent. Affine models offer a general multifactor structure with good mathematical properties. However, if the factors follow standard probability processes, Gaussian or Cox-Ingersoll-Ross square root diffusions, for instance, the probability distributions for future bond prices, swap rates, and so on, will not have common forms. Valuing interest rate derivatives typically requires burdensome numerical solution of multivariate integrals, which limits the number of stochastic factors that can be considered, as well as the accuracy with which any given solution can be computed. Collin-Dufresne and Goldstein present a new technique for pricing interest rate derivatives in a much more efficient manner. Within an affine framework, the probability density for a bond price will not normally exist in closed-form, but all of its moments will. An Edgeworth expansion using a small number of these analytic moment expressions yields an approximation to the density function that is both very accurate and extremely fast to compute. Pricing accuracy and computation speed are increased by many orders of magnitude for a single option, and little additional computation is needed to price multiple contracts with differing strikes.

  • © 2002 Pageant Media Ltd

Don’t have access? Register today to begin unrestricted access to our database of research.

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Derivatives
Vol. 10, Issue 1
Fall 2002
  • Table of Contents
  • Index by author
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Derivatives.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Pricing Swaptions Within an Affine Framework
(Your Name) has sent you a message from The Journal of Derivatives
(Your Name) thought you would like to see the The Journal of Derivatives web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Pricing Swaptions Within an Affine Framework
Pierre Collin-Dufresne, Robert S. Goldstein
The Journal of Derivatives Aug 2002, 10 (1) 9-26; DOI: 10.3905/jod.2002.319187

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Pricing Swaptions Within an Affine Framework
Pierre Collin-Dufresne, Robert S. Goldstein
The Journal of Derivatives Aug 2002, 10 (1) 9-26; DOI: 10.3905/jod.2002.319187
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Pricing Coupon Bond Options and Swaptions under the One-Factor Hull-White Model
  • Active QQQ Covered Call Strategies
  • Google Scholar

More in this TOC Section

  • The Subprime Credit Crisis of 2007
  • The Determinants of CDS Bid-Ask Spreads
  • Variance Reduction for Multivariate Monte Carlo Simulation
Show more Primary Article
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 1074-1240 | E-ISSN: 2168-8524

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies