Assessing swaption portfolios for prepayment risk mitigation: a parametric perspective

Monaco, Andrea; Perrotta, Adamaria und Sgarabottolo, Alessandro (2023): Assessing swaption portfolios for prepayment risk mitigation: a parametric perspective.

Abstract

We analyze the price behavior of Bermudan swaption portfolios used for hedging prepayment-driven interest rate risks in loan portfolios. We evaluate a variety of swaption portfolios across maturities and prepayment rates under various market conditions. Our findings reveal the existence of a parametric relation between swaption portfolio prices and the characteristics of the hedged loan. This relationship holds across different market conditions and valuation models, suggesting that one can swiftly adjust a swaption-based hedging strategy as loan portfolio characteristics evolve. This parametric approach allows financial institutions to reduce costs when assessing prepayment risks in their loan portfolios.

• Dokumententyp: Paper
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 500 Naturwissenschaften und Mathematik > 510 Mathematik
• Sprache: Englisch