Can someone explain, in layman's terms, the mechanics behind Bermudan Swapttions ( without having recourse to pricing models )?
Why are they popular? when are they used ?
How are they hedged i.e exercise strategy, main risk factors ( forward rates correlation, volatility ...etc.) ?
Any intuition / rule of thumb / approximation of pricing (e.g. wrt to its European swaption equivalent , weighted sum of European swaptions )
Now, and that is my main question, consider a strategy with a long bermudan swaption payer combined with a short European swaption payer ( with the same parameters ) i.e this captures only the optionality-feature. Any intuition about the price ? What would be the main risk in this case ? How to hedge it? Any approximation ?