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| Author: | Longstaff, F. A. Santa-Clara, P. Schwartz, E. S. |
| Title: | Throwing away a billion dollars: the cost of suboptimal exercise strategies in the swaptions market |
| Journal: | Journal of Financial Economics
2001 : OCT, VOL. 62:1, p. 39-66 |
| Index terms: | SWAPS TERM STRUCTURE OF INTEREST RATES |
| Freeterms: | EXERCISE STRATEGIES |
| Language: | eng |
| Abstract: | This paper studies the costs of applying single-factor exercise strategies to American swap options when the term structure is actually driven by multiple factors. Using a multifactor string market model of the term structure, the authors find that even when single-factor models are recalibrated to match the market at every exercise date, the exercise strategies they imply can be suboptimal. |
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