Capped equity swaps under the double‐jump stochastic volatility model with stochastic interest rates |
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| Authors: | Jia‐Hau Guo |
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| Institution: | Institution of Finance, College of Management, National Chiao Tung University, Hsinchu, Taiwan |
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| Abstract: | This study proposes a double‐jump stochastic volatility model with stochastic interest rates to price capped equity swaps and other multi‐period derivative securities. Closed‐form solutions for capped equity swaps with a fixed or variable notional principle are derived. In addition, numerical examples are employed to analyze comparative statics properties, counterparty risks, and the dynamics of the forward smile. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:340–370, 2011 |
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