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Sep 13

Constant Maturity Swap (CMS) option pricing

Posted by abiao at 11:46 | Code » VBA/Excel | Comments(1) | Reads(27280)
Constant maturity swap is a type of interest rate swap where the rate of interest of any single leg is readjusted in a periodic manner in case of market swap rate but not with the LIBOR (London Interbank Offered Rate) or any other floating reference index rate. In other words, it may also be said that the constant maturity swap actually allows the purchasers to fix the duration of the received flows on a swap. Constant maturity swap is also known as CMS. The Constant Maturity Swaps may be of two types - Single Currency Swaps or Cross Currency Swaps.

Pricing of cms option and a cms floor using the generalized Black-Scholes formula with a convexity adjustment Excel sample file: http://www.finmath.net/spreadsheets/CMS%20Option.zip, at the same page http://www.finmath.net/spreadsheets/ you can also find pricing of swaption using the generalized Black-Scholes formula.

wiki(Constant maturity swap)

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