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Pricing via characteristic functions arises naturally in models that involve Levy processes. Therefore I can see how Black's formula for swaptions can be generalized for Levy dynamics: As in Black's model take the annuity as numeraire, and define the relevant measure $Q$ Black assumes that under this measure the swap rate is martingale GBM, that is to say ...


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First of all, a Bermudan Swaption does not have to be of American type. Consider a "9NC2 Bermudan" (9 non call 2), basically a Bermudan swaption with final maturity in 9 years which is not exercisable for the first 2 years. I have not worked at an exotic rates desk in a while (many years to be more precise) but from what I remember you need to use a ...


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Benchmark yield curves: Make it easier for market participants to efficiently price interest rate products off such benchmark yield curves because there is a consensus and agreement on what serves as benchmark. Those could include government security yield curves, inflation adjusted/reflecting yield curves, among others. Funding curve: Is a set of rates ...



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