Sensitivities of Interest Rate Swaps Under the G2++ Model

Abstract

The two-additive-factor Gaussian model G2++ (which encompasses the famous two-factor Hull-White model) is a stochastic model which describes the instantaneous short rate dynamic. It has functional qualities required in various practical purposes as in Asset Liability Management and in Trading of interest rate derivatives.Recently we derived analytic expressions for the price sensitivities of zerocoupon bonds, coupon-bearing bonds and the portfolio with respect to the shocks linked to the unobservable two-uncertainty factors underlying the G2++ model.Interest Rate Swaps (IRS) are instruments largely used by market participants for many purposes. It appears that sounding analyzes related to the hedging of portfolios made by swaps is not clear in the financial literature.Our main goal here is to provide analytic expressions for the price sensitivities for the IRS with respect to the G2++ model of the interest rate. Our present results might provide a support for practitioners, using portfolio of swaps in their hedge decision-making.