Applying Approximate Swaption Pricing to Interest Rate Model of Quadratic Gaussian++

Swaption is one of the most basic and important instrument in the financial market. The high speed of its value pricing is required by not only the pricing itself, but also the calibration of model parameters for a certain interest rate model. This paper applies an approximate method with measure transformation and Taylor expansion to price the swaption value obeying the interest rate model of Quadratic Gaussian++. Consequently, the original complicated pricing becomes to calculate the expectation of the quadratic normal distribution easily. Some experiments show that the method behaves as about 200 times fast as the original pricing with numerical integration while high accuracy still remains (relative error is less than about 3.4 percent), which indicates that the method is possible for actual use.