We present a methodology to price a cash-settled swaption with strike contingent on the level of an equity index. The hybrid local volatility framework allows for calibration to market skew/smile and straightforward specification of an exogenous correlation. The framework can be extended to...

As a consequence of the high volatility regime recently established in the government bond market, investors may seek hedging their exposure to floating asset swap spreads. We obtain an analytical convexity correction for the asset swap spread which is instrumental to the pricing of constant...

In a Constant Maturity Treasury swap the exotic leg pays, for a given tenor, the yield-to-maturity computed out of a reference bond curve. This paper introduces a theoretical framework for the modelling of constant maturity treasury that takes into account default risk of bond issuer. As an...

The Treasury lock is a common pre-hedging derivative strategy the Street offers to their corporate clients. We provide a justification of the common practice of booking a short position in the Treasury lock as a forward contract on the underlying benchmark and a short position in the...

In a Constant Maturity Treasury (CMT) swap the exotic leg pays, for a given tenor, the yield-to-maturity computed out of a reference bond curve. This paper introduces a theoretical framework for the modelling of CMT that takes into account default risk of bond issuer. As an application, we...