Questions tagged [swaption]
The swaption tag has no usage guidance.
158
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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-...
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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 ...
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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 ...
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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 ...
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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 * ...
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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{\...
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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.
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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 ...
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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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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
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Is it possible to estimate 'future zero curves' using Hull-White 1 factor model?
With regards to the following:
https://www.mathworks.com/help/fininst/price-bermudan-swaptions-with-different-interest-rate-models.html
It seems to me that the HW1 model is used to generate the ...
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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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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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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 ...
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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.
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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 ...
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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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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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543
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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
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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 ...
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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 (...
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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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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.
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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?
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Unable to link volatility structure to swaption pricing engine
Good morning,
I am trying to link the volatility surface to my swaption pricing engine.
...
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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 ...
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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.
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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)?
...
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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 ...
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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?
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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 ...
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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.
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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 ...
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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 ...
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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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Calibrate Hull-white one factor model with swaption in analytical formula
I've been trying to calibrate Hull-white one factor model with swaption but I have a trouble making closed form solution of swaption
Below is the part of paper I've been referencing to
https://people....
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Rebonatos's formula in C++
I'm trying to code in C++ Rebonato's formula for swaption volatilities
$$ v_{\alpha,\beta}^2=\frac{1}{T_\alpha} \sum_{i,j=\alpha+1}^{\beta} \frac{w_i(0)w_j(0)F_i(0)F_j(0)}{S_{\alpha\beta}^2(0)}\rho_{i,...
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Swaption extrapolation
I have some ATM swaption volatilities with the following characteristics:
(-IBOR) payment frequency: 1M
Underlying swap maturities (tail): 1Y, 2Y, 5Y, 10Y, 15Y and 20Y
Swaption expiries: 1M, 3M, 6M, ...
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Greeks of caps,floors and swaptions
I will have an interview for a junior position as interest rates volatility trader.
I would like ask you some questions about greeks of caps floors and swaptions.
Are Caps vega positive? Are floors ...
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Trading desk assumes zero percent discount rate?
All the swaption and option models I have encountered at my employer's trading desks have assumed a zero percent discount rate. I have proposed using the LIBOR curve, but management responded that &...
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