Journal of Computational Finance

The link between caplet and swaption volatilities in a Brace–Gatarek–Musiela/Jamshidian framework: approximate solutions and empirical evidence

Peter Jäckel, Riccardo Rebonato


We present an approximation for the volatility of European swaptions in a forward rate-based Brace–Gatarek–Musiela/Jamshidian framework (Brace, Gatarek and Musiela, 1997; Jamshidian, 1997) that enables us to calculate prices for swaptions without the need for Monte Carlo simulations. Also, we explain the mechanism behind the remarkable accuracy of these approximate prices. For cases in which the yield curve varies noticeably as a function of maturity, a second, and even more accurate, formula is derived

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here