New pricing model revolutionizes exotic interest rate derivatives market.
The researchers developed a new model to price complex interest rate derivatives called Bermudan swaptions. They modified an existing model to include multiple interest rate curves and analyzed how this affected pricing. They found that their new model accurately priced swaptions with short timeframes and rates close to the swap rate. By comparing their model to a traditional one, they showed that their approach led to more accurate pricing for these types of derivatives.