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### Swaptions to calculate swap exposure for CVA

I am looking at using the swaption method to calculate the EPE and ENE on a swap over its life, to use in CVA/DVA calculations. I have a number of questions, how well does this method work in ...
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### Swaption Corridor Payoff Diagram

What does the payoff diagram look like for a long payer swaption corridor? For example, suppose that I am looking at a long-payer $1 \times 10$-year swaption with 10Y swaps as the underlying. If I ...
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### Swaption pricing

I am trying to understand the pricing of various types of swaptions. Suppose I have a swap that starts in 3 months time. How would I go about pricing a swaption on this swap in the following cases: ...
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### Volatility Parametrization Libor Market Model - Underspecified Model?

Does the volatility parametrization that I have chosen give an underspecified model? Which volatility parametrization in the Libor Market Model would suit the best for the particular case described ...
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### Interest rates - Swaptions implied volatility - Volatility anchoring with Black and with normal volatilities

In a LMM+ with displacement factor a volatility anchoring technique is used, i.e. a long term volatility assumptions is applied, derived from historic time series. Should I adjust this historic ...
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### Estimate the risk of swaptions

I would like to model OTM Swaptions. I can use some implementation of the Bachelier model (not B76 due to negative rates) and implied volatilities from Bloomberg. For 10Y X 10Y (10 years option ...
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### Pricing back swaptions corresponding to underlying swaps of Bermudan Swaption in calibrated LMM

I do not know to which swaption volatility matrix I have to calibrate the LMM in order to price back correctly the swaptions corresponding to the underlying swaps of a Bermudan Swaption. My problem: ...
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### Pricing Cancelable swap

Consider a first hypothetical, a swap. Party 1 is paying 6 month Libor, semi-annually. Party 2. pays $1+3*(\frac{Index_\color{red}{T}}{Index_0}-1)$ only at maturity. Say the notional is 1. $Index_t$ ...
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### Why can a swap option be regarded as a type of Bond option?

Why can a swap option be regarded as a type of bond option? My idea: Suppose the swap rate of the swaption is $s$. Now consider a bond option expiring at $T$ with strike, \$(P_K)_t = \dfrac{1}{1+s(T-...
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### Swaption Volatility Cube arbitrage

How can I exploit an arbitrage by violating the following no-arbitrage condition (taken from the paper "Arbitrage-Free Construction of the Swaption Cube" by Simon Johnson and Bereshad Nonas): Swptn(K,...
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### Normal Black&Schole model for swaptions isn't working properly

I just wrote two functions in Matlab which calculates the swaption prices based on the Lognormal model and on the Normal model, although I have the idea that the Normal model is wrong because the ...
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### Is there any template of hull white one-factor calibration model?

Recently I would like to look for excel template of hull white one-factor calibration model using swaption data for my urgent task? However, it seems that I cannot find suitable one in the web. ...
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### Why is there an upper limit on the premium of an ATM (!) call swaption in the Black76 model?

Trying to imply Black76 (where the forward swap rate is log-normal) volatilities as Bloomberg does in their VCUB screen we see holes at two regions: at short maturities due to negative rates which ...
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### Libor Market Model Calibration

Currently I am doing a research on the plain vanilla multi-curve framework Libor Market Model meaning that no stochastic volatility is involved. I had the idea to calibrate to the swaption market. In ...
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I'm currently valuing swaptions using an implied volatility surface and Black's formula. This formula is given by $$A (S\Phi(d_+) - K \Phi(d_-))$$ where $$d_{\pm} = \frac{\log\left(S/K\right) \pm \... 0answers 68 views ### BDT model calibration using swaptions I am using the Black-Derman-Toy model in a binomial tree that lasts 5 years with time increments of 1/12 . I have to calibrate my model using swaptions but I don't know which maturity I should use. I ... 1answer 51 views ### Swaption on a swap with 0 year tenor Any ideas on valuation of IRS swaption on a swap with 0 year tenor? As an example, we have a 5 year swaption, on expiration it is cash settled; the underlying swap tenor is 0 years with excercise and ... 1answer 441 views ### Greeks of a swaption using Brigo I struggeling with calculating the delta of a swaption. In the interest rate case I usually mess around with the multiple cash flows over time so that the discounting is more complex than in the ... 1answer 99 views ### Determining swaption prices using the characteristic function There exist multiple techniques to determine call option prices that make use of the characteristic function. These techniques boil down to some integral expression of the option price in terms of the ... 2answers 253 views ### swaption model for forward swap rate I have another question about interest rates. In this case it is about swaption and how to come up with a pricing formula. For the rest of my question I use the notation from Brigo. The payoff of a ... 1answer 501 views ### How to calibrate the Hull-White model using cap prices? I'm given cap prices and swap rates, and i'm trying to calibrate the Hull-White model to them. I then want to use the model in order to price a swaption. I know that the model can be calibrated from ... 0answers 69 views ### Price 3m libor autocap with LMM calibrated on 1y swaption data I need to calculate a price of an autocap contract which is An autocap is similar to a cap, but at most Î³ â‰¤ Î² caplets can be exercised, and they have to be automatically exercised when in the ... 1answer 222 views ### LMM. Calibration to swaptions by Brigo and Morini. Volatility of swaption that matures at T=0 I'm reading Brigo D., Mercurio F. Interest Rate Models - Theory and Practice (Springer, 2006)(ISBN 3540221492) and also a source article on LMM cascade calibration to swaptions by Brigo and Morini. I ... 0answers 315 views ### Calibration Problem in the LMM-Skew (Shifted Diffusion) Model I have implemented the LIBOR market model (LMM) and I am quite satisfied with the results. I have now added a skew to the model as described in 10.1 of Brigo/Mercurio. That is, I have replaced the SDE ... 2answers 217 views ### Machine learning for non optimal behaviour I was working on the pricing of complex bermudean swaption when I noticed that the exercise is often (very) subobptimal. It seems that the clients are more sensitive to past growth or drop in rates ... 0answers 174 views ### American Swaption Heding with Malliavin Calculus Hedging American Swaption Hello, I priced an American swaption using Black model with swap rates diffusion to find the european (call) price at t.$$ C_t = (\delta \sum_{j=n+1}^{M+1} Z_t^{T_j})[R(t,...
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What does this mean: "Front-end vols have been trading lognormally while longer tails have traded normally." I read this in a research report, in the context of ...
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### Interpolation of volatility curve for Swaption

I have found volatility in the black model for swaption for different maturity (1-2-3-6-9M, 1Y, 18M, 2-10Y, 15-20-25-30Y) and Tenor (1-10Y, 15-20-25-30Y). Now I need another values (Maturity: 2, Tenor:...
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### American Swaption Pricing with PDE discretization

So I am still trying to price an american swaption. (MC approach here: American Swaption Pricing with Monte-Carlo method) I've found in Paul Wilmott, The mathematics of financial derivatives, a PDE ...
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### American Swaption Pricing with Monte-Carlo method

I want to price an American swaption but I am not sure about what I am doing. Tree methods and PDE discretization seem difficult to adapt to a swaption. I am trying a Monte-Carlo approach. (in ...
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### Weighted average implied optionlet/swaptions volatility

Let an implied volatility curve/surface is made up by optionlets or swaptions Black's implied volatility. If you wanted to price, say, a FRN with cap and/or floor, a CMS et cetera you would input the ...
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### Recalibrating SABR parameters for Swaption ATM volatility

I understand that the ATM volatility of Swaption moves quite frequently and the SABR will need to be recalibrated. Which parameter should I recalibrate? Is there any financial meanings why we only ...
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### Is Cubic spline Interpolation on swaption Volatility arbitrage free?

If I use interpolation technique such as cubic spline to estimate volatility of Swaption with different strike,(with a given forward rate, swap and option maturity) will this be arbitrage free? What ...