# Questions tagged [swaption]

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### EURIBOR vanilla swaptions are in fact slightly-mid-curve swaptions

EURIBOR swaptions have their underlying swaps starting 2 business days after the expiry of the swaption, and are therefore slightly "mid-curve". How does the market take this into account (...
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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 ...
1 vote
55 views

### Problem fitting LMM to swaptions

I don't know what I am doing wrong. My goal is to calibrate correlations between my brownian motions. For that I simulate forwards paths and then calculate Swaptions rates. I use Euler Method to ...
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### Antoine Savine code proposition and swaptions

I am reading Antoine Savine's book "Modern Computational Finance: AAD and Parallel Simulation" and exploring is code proposition at the same time. Basically for him products (he doesn't ...
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### Wholesale customer subject to early redemption/ prepayment risk pricing

According to the BCBS framework, embedded behavioral options within wholesale customer agreements that are separated from the bank's assets or liabilities are subject to a comprehensive revaluation ...
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### Incompatibility between LFM and LSM

In an excellent textbook by Brigo & Mercurio (2006), there is an equation I coundn't derive. It's (6.40) (p.245, shown below) about the forward-rate dynamics under the forward-swap measure. I'd ...
1 vote
48 views

### 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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### Interpolating the volatility cube of European Swaptions

I'm in a situation where I have a cube of European swaption volatilities (normal volatilities), which contains only scattered data. Since it is three dimensional (Tenor, Term, Strikes) I'm having a ...
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### Brent algorithm supporting automatic differentiation

I painfully implemented automatic differentiation (AD) and a Gauss-Kronrod numerical integration routine working with it with AD. (Fully tested etc, perfectly working.) Needing a root finding ...
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### Price Path Dependent Swap

Let's say we start at t0, with a vanilla XCCY Swap contract (one leg paying Fixed Rate r, and denominated on Ccy1, the other leg paying Floating Rate f on Ccy2). Now let's assume you have two ...
364 views

### Buying a delta hedged payer swaption

If I/Client buy a European payer swaption, I understand that I gives me the right to pay the fixed rate at the strike level at maturity and receive a floating rate with an IRS- I expect interest rates ...
168 views

### How are swaption expiries scheduled if given with tenor?

Today I came across a trade which was a "1m5y" swaption booked as of trade date Tuesday 28th Feb 2023. This swaption has an expiry date of Thursday 30th March 2023. How was this expiry date ...
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101 views

### Measure of the behavior of Swaption surface

I'm looking to find a different measure than average shift move to explain the behavior of the IR VOL products say Swaption. I know it's a very open question not only touching upon IR VOL scope. Let ...
196 views

### What book/resources would you recommend for beginners in IRD? [duplicate]

I recently graduated with a MS degree in Quantitative Finance and will presumably have some work to do with Interest Rate Derivatives (IRD) in the future. Since my experience lies more in the equity ...
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### A rates model for EUR and USD pricing in different underlyings (EURIBOR (yes) or ESTR, and SOFR)

Being a house mainly focused on almost everything else that rates products we never had a "rates pricer", no surprise. The best connected to rates thing we have is an equity/fx/what have you ...
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### Practical examples of pricing Mid-Curve Swaptions [duplicate]

Are there any books or papers that run through practical examples of Mid-Curve Swaption pricing, and their liquidity in the market? So I can match the theory to the practical. Thanks.
1 vote
471 views

### 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 ...
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1 vote
113 views

### Is $N(d_1)$ a good approximation that a swap enters in the money?

I'm looking for an easy method to approximate the probability of the forward swap rate that is implied by the swpation market. One possibility would be to fit a certain model, e.g. SABR, and extract ...
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1 vote
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### SabrSwaptionVolCube Class in Quantilib Python

Just noticed after upgrading to the most recent version of Quantlib Python that the class ql.SabrSwaptionVolCube is now available. This is a very useful class in that it behaves in very much the same ...
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### Can someone explain to me how volatility/premium works for ATM swaptions? Why are they the same for calls and puts? [duplicate]

I don't understand how Bloomberg quotes ATM swaptions, they just show the same volatility/premium and don't separate calls and puts. Are they the same? How does it tie to normal volatility? Thanks
180 views

### Pricing the embedded option in a callable floating rate note

From my understanding, I know that we can decompose a long callable bond into a long vanilla bond and short receiver swaption. However, I do not understand, how could I separate or calculate the ...
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1 vote
665 views

### Gamma and Theta of a swaption

For a swaption, I had 2 questions: how would I guage the PnL based on RV vs IV on a swaption? I'm guessing its 0.5 x gamma x (RV^2-IV^2)(or realized variance - implied variance) Not 100% sure on ...
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### How to interpret the implied vol for swaptions in a bachelier and black model and how forward pricing relates to it

I have two very simple question about the implied volatility of a swaption and how it relates to actual rates level. Suppose we have two famous models, Bachelier and Black. Under either model, the ...
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### Expiry of a midcurve swaption

Have a logical question - let me paint a picture. I have a 1y5y5y Midcurve Payer Swaption, and at Expiry the swaption is ITM (say the 5y5y rate is 4% and my strike is 3%). then 5 years after expiry (...
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### How to understand wedge?

It is heard that trading wedges (cap/floor straddle - swaption) is actually trading the correlation btw forward rates. How to understand this? Either swaption or cap/floor seem to be insensitive to ...
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1 vote
141 views

### How to find volatility of a 1 day option based on 2 day annualized volatility

first time -I'm curious as to how the following would work: I have a 2 day(only includes full day of Thursday and Friday) swaption with a volatility of 100 bps. We also know the weights we've assigned ...
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### Why are LMM+ parameters becoming more unstable when using an inverted volatility term structure

I have an implementation of an LMM+ model (a shifted Libor Market Model with rebonato volatility function) and am seeing recently that the calibrated parameters are becoming more unstable over time; I ...
375 views

### How to price PIK (paid-in-kind) coupon bond with option by the borrower to pay cash?

I'm trying to price a PIK coupon with an Embedded Option by the borrower to pay in cash. Without the Embedded Option, it is simply a zero-coupon bond paying Principal*(1 + coupon rate)^n at the end. ...
1 vote
323 views

### Call probability of a callable swap

For one call date, The call probability is just the probability that the swap rate for the remaining life of the swap is below the strike rate. This is easily obtainable in a normal vol model, it is : ...
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### Workaround for Hull-White short rate model in market without swaptions

Every time I search calibration methods in short-rate models such as Hull-White, I always find information on how to do it with swaptions market data. Yet, I can't find anything about how to do it in ...
137 views

### 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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1 vote
544 views

### BLOOMBERG Strike vs Straddle Volatility

In Bloomberg's VCUB, what is the difference between the "strike" volatility and changing this option to "straddle"? It seems like the "straddle" vol should be the same as ...
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880 views

### From Implied volatility to shifted Black volatility

I don't know who to go from normal to shifted black volatility before calibrating SABR with negative interest rates. I see: "As we know that implied volatilities have a one-to-one relationship ...
641 views

This is my first question here and I hope that my question is appropriate. I have some data about swaptions that are from the bloomberg terminal and basically I am performing a risk-neutral ...
1 vote
468 views

### Use the put-call parity to get the implied swap rate of a YoYIIS cap(floor)

Solved As pointed by @dm63 in the comments, the implied swap rate can be derived by solving the caplet (floorlet) formula for the the interest rate, where you set the formula equal to the Swap NPV (...
260 views

### Swaption risk bucketing

In the IR swaption market, we have 24Expire10Tenor instruments(like a 2410 Matrix). Now I have the Vega number for each instrument, and I want to reduce the matrix size with the same total vega risk. ...
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Can someone please list all the Swaption trade data elements. I am doing research and trying to ensure I document all key data elements of a Swaption trade.
1 vote
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### Calibrating HW 1f model params to a term structure market data

I am using Quantlib to calibrate the HW model params to the market swaption price. The attached chart shows the performance of the calibration. Am I correct in saying, this is expected for the 1f HW ...
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### Reconciling different specifications of drifts in the LMM

I've been going through the book "Fixed Income Securities" by Bruce Tuckman which gives the following definitions of the drift terms (after showing it for a specific example with 3 forward ...
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### Can I Delta hedge Swaption with 1month option expiry on 10 year swap as 1 month forward starting swap (expiry 10 yr) & notional as Delta% of swaption [closed]

Whether below is correct 1 month expiry of swaption with 10 year swap underlying can be delta hedged as with below swap: Notional of swap = delta% of swaption multiplied by notional of swaption As of ...
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### Evaluating swaptions with negative interest rates

Does anyone know if it is possible to evaluate swaptions with negative interest rates with Quantlib? ...
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 ...