Pricing a Callable Leveraged Constant Maturity Swap Spread Note

10 Pages Posted: 8 Nov 2012 Last revised: 18 Nov 2012

See all articles by Daniel L. Chertok

Daniel L. Chertok

NorthShore University HealthSystem

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

Chertok, Daniel L., Pricing a Callable Leveraged Constant Maturity Swap Spread Note (November 8, 2012). Available at SSRN: https://ssrn.com/abstract=2172891 or http://dx.doi.org/10.2139/ssrn.2172891

Daniel L. Chertok (Contact Author)

NorthShore University HealthSystem ( email )

4901 Searle Pkwy.
Suite 1450
Skokie, IL 60077
United States
847-982-5226 (Phone)

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