Pricing a Callable Leveraged Constant Maturity Swap Spread Note
10 Pages Posted: 8 Nov 2012 Last revised: 18 Nov 2012
Date Written: November 8, 2012
Abstract
A callable leveraged constant maturity swap (CMS) spread note allows the holder to benefit from future changes in the spread between two swap interest rates. The issues retains the right to call the note at pre-specified times in the future. The note is priced via Monte Carlo simulation using the current term structure of interest rates and at-the-money implied swaption volatilities.
Keywords: constant, maturity, swap, CMS, note, holder, interest, rate, differential, Monte Carlo, simulation, pricing, leverage, derivative, swaption, volatility, correlation
JEL Classification: C63, E43, E47, G12, G13
Suggested Citation: Suggested Citation