Pricing Asian-style interest rate swaps
Journal
Journal of Derivatives
Journal Volume
9
Journal Issue
4
Pages
45-55
Date Issued
2002
Author(s)
Chang C.-C.
Abstract
This research uses an extended Vasicek term structure model to derive closed-form solutions for Asian-style interest rate swaps, whose payoffs are determined by the average interest rates over a period between two consecutive settlement dates. The authors illustrate the pricing properties of Asian-style interest rate swaps and compare them with those of standard interest rate swaps. They show that an Asian-style interest rate swap does not necessarily cost less than a conventional interest rate swap in this framework. The key factors that make the swap rates of Asian-style and standard interest rate swaps different are the shape of the initial term structure of interest rates and the length of reset periods. Copyright ? 2002 Institutional Investor, Inc. All Rights Reserved.
Type
journal article