Questions tagged [bermudan]

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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 ...
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30 views

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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468 views

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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216 views

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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1answer
57 views

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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14 views

How to show the Bermudan put option is convex in strike price?

Is there a way to generalise the arbitrage argument for a European put being convex in strike price to the Bermudan option? (i.e. considering two portfolios, showing one has greater value than the ...
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15 views

Introducing initial lockout period for American-Asian options pricing in R

Currently attempting to price American-Bermuda-Asian call options using Monte Carlo simulations as done in Longstaff and Schwartz (2001). The options have an initial lockout period of 3 months, ...
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145 views

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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1answer
157 views

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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1answer
102 views

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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1answer
302 views

Bermudan Swaptions

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 ...