Abstract
In this paper we present a closed-form approximation for analytic pricing of CMS spread options in multifactor Quadratic Gaussian model. We benchmark prices calculated using closed-form approximation to the one calculated via numerical integration and demonstrate that approximation errors are very small. We also demonstrate that resulting pricing formulae are easy to implement, therefore should be particularly useful in calibration of multifactor Quadratic Gaussian model to CMS spread option prices.
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Rakhmonov, P., Rakhmonov, F. CMS spread options in quadratic Gaussian model. Rev Deriv Res 25, 283–291 (2022). https://doi.org/10.1007/s11147-022-09188-w
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DOI: https://doi.org/10.1007/s11147-022-09188-w