Swap rate: cash-settled swaptions in the fallback

A fallback pricing method that reduces vanilla swaptions’ complexity is introduced


The Libor swap rate fallbacks proposed by different working groups are transforming vanilla swaptions into exotics with extra convexity adjustments. Marc Henrard proposes different pricing methodologies for cash-settled swaptions with collateralised discounting and exotic swaptions, including several price approximations to reduce the numerical complexity of implementation

The future of the London Interbank Offered Rate (Libor) looked bleak in the years following

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