Journal of Computational Finance

Analytical and Monte Carlo swaption pricing under the forward swap measure

Atsushi Kawai


This paper focuses on analytical and Monte Carlo simulation methods to price European swaptions in the lognormal Libor market model. To facilitate the developments the analysis is carried out under the forward swap measure. The paper provides an approximate formula for European payer swaptions and proposes an efficient Monte Carlo simulation method using a control variate technique.

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