Pricing of equity swaps in uncertain financial market

Abstract

As one of the important derivatives in the over-the-counter market, the scale of equity swaps is expanding. The frequent development of equity swap business makes investors more pursue fairness when signing contracts, hedging risks, and maximizing returns. This paper provides investors with a reference for the pricing of equity swap contracts. Assuming that the stock price follows an uncertain mean-reverting process and the interest rate follows an uncertain Ornstein-Uhlenbeck process, the pricing formulas of equity swaps with a fixed (or floating) interest rate are derived, which enriches the existing financial pricing theory. In addition, this paper also designs the calculation method of the contract price and applies it in conjunction with examples.