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Quantitative Finance · Begrippenlijst

Wat is Swap market model?

Definition 8.9 Rates, Credit, XVA and Risk · Hoofdstuk 8 — Forward-Rate and Market Models

A swap market model makes chosen swap rates lognormal under their own annuity measures, so that swaptions are priced by Black’s formula. It cannot hold together with a lognormal market model of the forwards: a weighted sum of lognormals is not lognormal. Desks use one and approximate the other.

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