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A game swaption, newly proposed in this paper, is a game version of usual interest-rate swaptions. It provides the both parties, fixed-rate payer and variable rate payer, with the right that they can choose an exercise time to enter a swap from a set of prespecified multiple exercise opportunities. We evaluate two types of game swaptions: game spot-start swaption and game forward-start swaption, under the generalized Ho-Lee model. The generalized Ho-Lee model is an arbitrage-free binomial-lattice interest-rate model. Using the generalized Ho-Lee model as a term structure model of interest rates, we propose an evaluation method of the arbitrage-free price for the game swaptions via a stochastic game formulation, and illustrate its effectiveness by some numerical results.


Generalized Ho-Lee Model, Game Spot-Start Swaption, Game Forward-Start Swaption, Stochastic Game Formulation, Dynamic Programming Approach

Cite this paper

Ebina, A. , Ochiai, N. and Ohnishi, M. 2016 Valuation of Game Swaptions under the Generalized Ho-Lee Model. Journal of Mathematical Finance, 6, 1002-1016. doi: 10.4236-jmf.2016.65065.

Autor: Aki Ebina1, Natsumi Ochiai2, Masamitsu Ohnishi2,3



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