Questions tagged [bermudan]
The bermudan tag has no usage guidance.
31
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Evaluate the flexi deposits early redemption risk using swaption pricing method
When I use swaption pricing method to evaluate the flexi-deposits early redemption customer behavioural option, I should calculate the spread as a input to the quantlib swaption object. Should I take ...
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1
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208
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IRS with early termination provision
I have an IRS with an early termination clause (Bermuda style). Do I value it as always or does it have any impact on the value?
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54
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Impact of Skew on Bermudan Swaptions
I'm trying to understand the impact of different skew assumptions on the pricing of Bermudan swaptions, e.g. 10NC1 struck at K%.
It is often stated that the price of the Bermudan depends primarily on ...
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80
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What are the boundary conditions for an up-and-out binary call option of Bermudan type?
I know that an up-and-out binary call option of American type will never knock out if barrier is greater than the strike since the option stops immediately if the stock price touches the strike due to ...
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149
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Pricing fixed rate redeemable bond
A redeemable fixed rate bond has a yearly payment schedule $T_1,\ldots,T_m,\ldots,T_n$ : at each $T_i$ is paid the coupon $c$ (I assume the year fraction is approximativately $1$) (and a notional $X$ ...
- 271
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486
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When to exercise a physical Bermudan swaption
I have seen a lot of literature regarding the valuation of physical Bermudan Swaptions.
However, I could not find any answer to the following question: if you're a trader and an expiry date is ...
- 35
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2
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256
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Convergence rate of Bermudan to American option
When trying to value an American option we often use grid-based methods (e.g. Monte Carlo in combination with Longstaff Schwartz; or Finite Difference Methods). As such, we are in fact estimating the ...
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142
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Validity of Bermudan Swaption's Price/Greeks
I'm implementing a lot of stochastic models on my own for fun and I'm quite puzzled about the usual procedure concerning the correctnes of Bermudan swaptions prices and greeks ? How can you tell that ...
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265
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Bermudan Swaption Pricing via Least-Square Monte Carlo
I have some confusion regarding pricing a Bermudan Swaption using LSMC.
Let's say the underlying swap has payment dates $T_0 < T_1 < \ldots < T_n$ and for simplicity, assuming the exercise ...
2
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187
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Bermudan pricing in Black-Scholes
Is there an "analytical" method to price American options (approximated as daily Bermudans) in the Black-Scholes model using backward induction?
$$V_T(S) = \max(K-S, 0)$$
$$V_{T-\Delta t}(S) ...
- 525
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Bermudan Swaptions - Payer vs. Receiver (LGM)
There is abundant literature discussing the pricing of Bermudan swaptions and the relevance of single-factor Markov-functional models (e.g. LGM) versus multi-factor market models (e.g. LMM).
From a ...
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When is the effect of skew most potent for an early exercise option?
Let us say I have a Bermudan option which I can terminate at 3 possible dates. When can I expect the discrepancy between a local vol and a stochastic vol model to be highest (assuming both are ...
- 2,521
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93
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Hedge robustness of the one factor Hull White model
I recently came across a quote in a book:
"All single factor models share the limitation that shifts in curve levels cause shifts in the package of vanilla options that are a good hedge for the ...
- 2,521
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481
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Bermudan option exercise probability when rates rise
I am looking for an explanation of what happens to the Bermudan exercise probability (i.e. does probability of early exercise go higher if rates rise or lower) w.r.t rates. This is of course with ...
- 2,521
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332
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Inequality involving Co-Terminal/Co-Initial American vs Bermudan Swaptions
Let us consider a payment schedule $\mathcal{P}:=\{t_1,\dots,t_n\}$ which has a corresponding fixing schedule $\mathcal{F}:=\{t_0,\dots,t_{n-1}\}$. We have a series of co-terminal and co-initial swaps ...
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Why does a Bermudan option have a higher implied volatility than its European counterpart?
I get that the premium for an earlier exercise should be higher to compensate the seller but intuitively you would think that the spot has "less room to run" in a potentially shorter period of time (...
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536
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Is Longstaff-Schwartz best method for Bermudan options?
What is the go-to method for pricing of Bermudan/American options?
I've heard the Longstaff-Schwartz method is really popular. Is it better than the other methods generally speaking? If not, which ...
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2
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327
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Lower bound for Bermudan Option Price
i have the following question. The price of an Bermudan option is given by
\begin{align*}
V_{0} = \sup_{\tau \in \mathcal{T}(0,\dots, T)} \mathbb{E}[f_{\tau}(X_{\tau})].
\end{align*}
It is ...
- 63
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1k
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Bermudan Swaption
Is there an equation of the kind of call-put parity for Bermudean swaptions ? (maybe an inequality )
Is there an intuitive description of what would be an optimal exercise moment ? Intuitively I ...
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433
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Asian Options Vs Bermudan Options
Which of these options are more popular in practice/used in industry? And where exactly are they used?
Also, I have been searching for listed Asian and Bermudan options, for volume data etc, but have ...
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319
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Moneyness for Cancellable Swaps
Hi I wanted to know we can assess the moneyness of Cancellable swaps?
For example, I have a swap where I am paying the fixed rate and also have an option to cancel this option. How do I assess the ...
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298
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RQuantLib: BermudanSwaption(): effective date later than or equal to termination date
When running the command in the RQuantLib library:
...
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Bermudan Swaptions [closed]
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 ...
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Valuation of Bermudan option as maximum of relevant European options
Assume I need to price a Bermudan option which can be exercised at following dates: $t_1$, $t_2$, ..., $t_n$. I think that the price of such an option will be maximum of the prices of European options ...
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Option style with grant date
The following option exercise style is somewhere between American and European:
There is a fixed grant date $N_1$ at which you determine at which date $N_2>N_1$ the option will be exercised.
So ...
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674
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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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438
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Overpricing Bermudan swaption using Shifted LMM
I am trying to model a callable range accrual note linked to the EUR CMS spread, 20Y-10Y, with cap and floor. The note is Bermudan, callable starting year 3, every 3 years till maturity at 30 year. We ...
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591
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Can call options be priced with Least-Squares Monte Carlo?
I have been reading about Least-Squares Monte Carlo (using Longstaff & Schwartz algorithm) for option pricing.
So far, I have only read examples that uses LSMC for american/bermudan PUT options ...
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How can one value a Bermudan option?
A Bermudan option allows early exercise at predefined dates, e.g. at maturity equal to $t_1$, $t_2$, $t_3$,...;
hence , would its value be the sum of 3 discounted European options with 1-year ...
- 5,805
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How to price an option with a "step up" feature using binomial tree?
I have a call option with expiry in two years. In my case the option is bermudan style with first 9 months w/o ability to exercise (i.e. European) and after exercise at any time (i.e. American), but I ...
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733
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Will pricing a Bermudan option default to a value of a European option?
I have a call option with 2 expiry in two years. For the first 9 months I cannot excercise the option. After that the I can exercise at any time. I am pricing this option using a binomial tree using ...
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