The relative valuation of caps and swaptions: Theory and empirical evidence

• 成果类型: Article
• 署名作者: Longstaff, FA; Santa-Clara, P; Schwartz, ES
• 署名单位: University of California System; University of California Los Angeles
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/0022-1082.00399
• 发表日期: 2001
• 页码: 2067-2109
• 关键词: INTEREST-RATE SWAPS; INTEREST-RATE CURVE; term structure; DYNAMICS; MARKET; MODEL

摘要

Although traded as distinct products, caps and swaptions are linked by no-arbitrage relations through the correlation structure of interest rates. Using a string market model, we solve for the correlation matrix implied by swaptions and examine the relative valuation of caps and swaptions. We find that swaption prices are generated by four factors and that implied correlations are lower than historical correlations. Long-dated swaptions appear mispriced and there were major pricing distortions during the 1998 hedge-fund crisis. Cap prices periodically deviate significantly from the no-arbitrage values implied by the swaptions market.