Cash-settled swaptions and no-arbitrage

Fabio Mercurio derives no-arbitrage conditions that must be satisfied by the pricing function of cash-settled swaptions. He then identifies a strategy leading to an arbitrage when such conditions are not met

Cash-settled swaptions are the most actively traded swaptions in the European market. Their payout is obtained by replacing the classical annuity term with a single-factor one, where discounting is based on a unique interest rate, namely the underlying swap rate set at the option's maturity. This simplification serves the purpose of a swaption payout whose value at maturity can be set with no ambiguity. However, from the modelling point of view, some complications arise, to the extent that cash

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What gold's rise means for rates, equities

It has been several years since we have seen volatility in gold. An increase in gold volatility can typically be associated with a change in sentiment and investor behavior. The precious metal has surged this year on increased demand for safe haven…

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