Replication of flexi-swaps

F. Jamshidian, Ingmar Evers

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    Abstract

    Ingmar Evers and Farshid Jamshidian describe a relatively new product known as a flexi-swap and discuss its application in securitisation. A flexi-swap gives a counterparty an option to amortise the interest rate swap at an accelerated pace. They show that it can be replicated semi-statically by a vanilla amortising swap plus a portfolio of Bermudan swaptions. The derivation employs a novel ‘high-low interest rate path’ argument, which results in a simple algebraic formula for the weights
    Original languageEnglish
    Pages (from-to)67-70
    Number of pages4
    JournalJournal of risk and uncertainty
    Publication statusPublished - 2005

    Keywords

    • IR-82135
    • METIS-223886

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