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CCF Seminar
Jing Wang
Carnegie Mellon University
Title: The relative valuation of caps and swaptions: theory and empirical evidence

Abstract: In this talk, I will present a paper by Longstaff, Santa-Clara and Schwartz, which was the basis of my summer intern project at Credit Suisse. The paper studied the no-arbitrage relations between caps and swaptions. Under a string market model framework, they solved for the correlation structure of forward LIBOR rates implied by the swaption market, used it to price the caps, and then examined the relative valuation of caps and swaptions. The results showed evidence of the inconsistency between the two products.

Date: Monday, October 3, 2011
Time: 5:00 pm
Submitted by:  Steve Shreve