Price European swaption using Linear Gaussian two-factor model
The following defines the swaption price for a two-factor additive Gaussian interest-rate
model, given the ZeroCurve
, a
, b
,
sigma
, eta
, and rho
parameters:
where is a two-dimensional Brownian motion with correlation ρ and ϕ is a function chosen to match the initial zero curve.
[1] Brigo, D. and F. Mercurio. Interest Rate Models - Theory and Practice. Springer Finance, 2006.