I have a cancellable swap to value, with the float leg payer being a clearing house.

The cancellable term sheet states the interest rate swap has a Bermudan style optionality for early termination but doesn't specify which party is long the option. Hence I cannot value this swap. The owner of this swap suggested that this is not relevant given it is a cleared swap - and i don't understand why.

What is the difference in valuation approach to a cleared and non-cleared cancellable swap?

  • $\begingroup$ What's the settlement type for cancellation? Cash settlement applicable? $\endgroup$ – crunch Mar 2 '17 at 23:49
  • $\begingroup$ cash settlement yes $\endgroup$ – ssc5338 Mar 3 '17 at 0:03
  • $\begingroup$ There is something wrong with your information. Bermudian cancellable swaps are not cleared by any exchange. Secondly, of course it matters who has the cancellation option. Please verify the facts? $\endgroup$ – dm63 Mar 3 '17 at 1:31
  • $\begingroup$ @sc5338 if cash settlement is applicable, and it's under an ISDA master agreement with the relevant ISDA definitions applicable, then there is no value as cash settlement takes place at fair value. $\endgroup$ – crunch Mar 5 '17 at 11:55

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