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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 ...
James Walker's user avatar
0 votes
2 answers
151 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 ...
anon123SA12's user avatar
2 votes
0 answers
106 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 ...
Attack68's user avatar
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2 votes
0 answers
89 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 ...
Michael W's user avatar
-1 votes
1 answer
166 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 ...
Gull23's user avatar
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0 answers
82 views

Pricing a swaption in a Hull-White model with two curves

Let's say the forward swap rate $s_t$ is equal to $$s_t = \frac{\sum_{j=1}^N \delta_j^{\textrm{float}} P_{t,T_j^{\textrm{float}}}^{\textrm{disc}} L_t^{[T_{j-1}^{\textrm{float}},T_j^{\textrm{float}}]}}{...
11house's user avatar
  • 83
1 vote
3 answers
418 views

Floor vs Receiver Swaption with Equal Strike

Let's say we have the following two instruments. A 5x10 floor (5-year floor, five years forward) with a 4% strike on 1-year SOFR and A 5 into 5 European receiver swaption (right to enter into a 5-...
lambda111's user avatar
0 votes
0 answers
59 views

When calculating swaption greeks, would annuity need to be considered? [duplicate]

we all know that swaption price = annuity * black price. The question is that when calculating risks, should we treat annuity as a constant. i.e. is it correct that swaption delta = annuity * black ...
Peaceful's user avatar
  • 734
1 vote
1 answer
210 views

what is the point of SABR model as an interpolation tool if we can already observe the whole vol cube from the market

on BBG and other data providers, it is common that you can find the whole vol surface/cubes. What is the point of the SABR model as an interpolation tool? why cannot people just linear interpolate the ...
Peaceful's user avatar
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1 answer
168 views

Effect on Forward Swap Rate from a parallel shift in forward curve

Can anything be said on how a parallel shift in the forward curve affects the forward swap curve? To be more concise, say we have a model estimate of the implied vol for the 2Y-10Y point (2Y ...
J Muscat's user avatar
2 votes
1 answer
824 views

How is this greek calculation meaningful?

For a swaption, the "Pricing And Hedging Of Swaptions" paper by Akume et al (2003) says: I get that he's just taking the derivative of the swaption valuation formula (which is N * A * ...
Nope's user avatar
  • 21
0 votes
0 answers
127 views

Backtesting One-Factor HJM model with selling European Receiver Swaption

I am attempting back test the performance of a model - namely the Musiela equation used to model instantaneous forward rates with constant time to maturity: $$r(t,x)=r(0,x)+\int_0^t\left(\frac{\...
user67245's user avatar
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0 answers
171 views

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 ...
Olórin's user avatar
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0 answers
63 views

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.
Algoman's user avatar
1 vote
1 answer
389 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 ...
SPF531's user avatar
  • 35
1 vote
1 answer
104 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 ...
swissy's user avatar
  • 157
1 vote
0 answers
224 views

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 ...
user35980's user avatar
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0 votes
0 answers
38 views

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
OracleOdessa's user avatar
0 votes
0 answers
142 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 ...
Fangy's user avatar
  • 21
1 vote
1 answer
539 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 ...
IJUT's user avatar
  • 11
0 votes
1 answer
616 views

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 ...
swissy's user avatar
  • 157
0 votes
1 answer
174 views

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 (...
purr's user avatar
  • 11
2 votes
2 answers
1k views

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 ...
JUW's user avatar
  • 51
1 vote
1 answer
116 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 ...
purr's user avatar
  • 11
2 votes
0 answers
87 views

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 ...
blah_crusader's user avatar
0 votes
1 answer
280 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. ...
Andrei Sultanov's user avatar
1 vote
0 answers
262 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 : ...
Lrzo48's user avatar
  • 11
2 votes
2 answers
388 views

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 ...
Oliver Mohr Bonometti's user avatar
0 votes
0 answers
111 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 ...
Hilbert's user avatar
  • 63
1 vote
1 answer
490 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 ...
Alex R's user avatar
  • 11
0 votes
1 answer
735 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 ...
Natan Kowalski's user avatar
3 votes
1 answer
513 views

Question about swaption premium quote on the bloomberg terminal

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 ...
Dilapidated Mattress's user avatar
1 vote
1 answer
399 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 (...
peanut_butter_from_the_tub's user avatar
0 votes
0 answers
226 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. ...
Tian's user avatar
  • 71
0 votes
1 answer
92 views

Swaption trade data elements

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.
Robert F's user avatar
1 vote
0 answers
116 views

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 ...
sumit_uk1's user avatar
  • 141
0 votes
1 answer
84 views

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 ...
Oscar's user avatar
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0 votes
1 answer
208 views

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 ...
Rahul Jain's user avatar
0 votes
1 answer
201 views

Evaluating swaptions with negative interest rates

Does anyone know if it is possible to evaluate swaptions with negative interest rates with Quantlib? ...
Jorge Gisbert's user avatar
0 votes
0 answers
65 views

Unable to link volatility structure to swaption pricing engine

Good morning, I am trying to link the volatility surface to my swaption pricing engine. ...
Jorge Gisbert's user avatar
2 votes
0 answers
239 views

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 ...
Fail Analysis's user avatar
1 vote
2 answers
6k views

Swaption ATM Vol Quotes and Interpretation: Normal Vol to Black

How do you interpret the time-series of 1m10y black vol vs normal vol? Normal vol would have you believe, that rate vol has since 2000 been low whereas black vol would show you a different picture. ...
nresiduums's user avatar
1 vote
1 answer
434 views

Carry on a USD 6m10y payer swaption

Trying to calcuate the carry on a 6m10y payer swaption. So far, I have used: carry = spot rate - libor Do I use the 6m LIBOR rate (0.15213%)? And do I just use the 10y yield for the spot rate (1.26)? ...
Jonny's user avatar
  • 11
2 votes
1 answer
1k views

Delta hedge swaption straddle

Let's say you decide to buy a 2Y10Y ATM swaption straddle (i.e. buy 10 million ATM payer swaption and buy 10 million ATM receiver swaption). In order to delta hedge, I believe you would short the ...
sn98's user avatar
  • 21
1 vote
1 answer
1k views

Sabr vs Heston for IR swaptions

Why is SABR considered the model of choice for swaptions? Is the Heston model not suitable? Does Heston produce unrealistic dynamics with respect to the swaption market?
memegame's user avatar
2 votes
1 answer
274 views

Swaption Terminology

What does 5y10y200 WC mean? Further, what does 2y10y WS mean? I know the first digit (5 or 2) means that the swaption starts in 5 or 2 years time, and the second digit shows how long the exchange ...
Jonathan Bush's user avatar
0 votes
0 answers
113 views

Swap Fly PnL Payoff Question

Stuck on this payoff question. What is the PnL on 5s10s30s on a swap fly 10k 01, where the fly moves 8 to 26bp? Any ideas would be much appreciated.
Jonathan Bush's user avatar
1 vote
2 answers
281 views

Free Arbitrage conditions in ATM swaption surfaces

I'm wondering how can we check free arbitrage conditions in ATM swaptions surfaces since we only have access to Expiry, Tenor and volatility? Can someone help me please, i didn't find any article ...
toto's user avatar
  • 11
1 vote
1 answer
2k views

What is the definition of "co-terminal swaptions"? why they are important in the calibration process?

could anyone help me understand the definition of "co-terminal" swaptions? What are they? Can you provide an example to illustrate? And why such instruments are important in model ...
pqsn's user avatar
  • 49
8 votes
1 answer
1k views

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 ...
Quantuple's user avatar
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