The Pricing and Hedging of Index Amortizing Rate Swaps

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Quarterly Review

The Pricing and Hedging of Index Amortizing Rate Swaps

Winter 1993-94Volume 18, Number 4

Author: Julia D. Fernald

Index amortizing rate (IAR) swaps have proved difficult to price because of the complexity of their embedded options. Since these options depend on the path of interest rates, pricing requires a model of interest rate movements. This article uses a simple interest rate model to illustrate the pricing and hedging of an IAR swap.

PDF full article PDF

4 pages / 300 kb

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