Questions tagged [swaption]

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78 views

European Swaption Pricing Using Normal volatilities

On page 6 of this paper a forumla is given for payer swaptions, I am just wondering what is the formula for receiver? My implementation of the formula for payer and receiver is here, but I am not ...
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21 views

Quantlib gives error message when Valution date is backdate

Valuation Date As Backdate(12 November 2019) On calcuating Vanilla Swap, Quantlib gives error message as below ...
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1answer
53 views

QuantLib: Which CalibrationHelper to use for Normal Volatilities

I am using the SwaptionHelper class to create the swaptions. Reading the documentation: https://www.quantlib.org/reference/class_quant_lib_1_1_swaption_helper.html I realize that one of the ...
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37 views

Constructing Daily Term Structure

I am very new to QuantLib and am trying to do Swaption Model calibration following the example here:http://gouthamanbalaraman.com/blog/short-interest-rate-model-calibration-quantlib.html Appreciate ...
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33 views

Swap rate in the annuity measure and Martingale Representation Theorem

As we know, swap rate evolves as a martingale in the appropriate annuity measure. Martingale representation theorem says if I can find a Brownian motion in the annuity measure and the swap rate is ...
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99 views

Swaptions on SONIA/SOFR/ESTR

Given that LIBOR is being decommissioned and we must start building liquidity in swaptions on the OIS swaps, how do we price them? i.e. If I have a swaption on SONIA/SOFR/ESTR etc how does the pricing ...
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1answer
100 views

What happens to both sides of an inflation swap agreement if there is deflation?

If there is deflation does the Inflation receiver not only pay the fixed leg but also receives a reduced CPI? I.e. does he lose twice?
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55 views

PV01 of physically-settled swaption

Can we say that the PV01 of the physically-settled swaption is equal to the annuity / discount factor?
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44 views

PV01 of Physically settled Swaptions contrat

Can you please help me figure out how to find PV01 Physically settled Swaptions contract 20Y30Y with fwd rate 0.01974 with fixed freq=2, using ACT/360 with 02/08/2019 -> 02/08/2039 and 02/08/2069 ...
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1answer
75 views

Hedging convexity for long-dated fixed cashflows

I'm wondering what are the different ways of hedging the convexity in fixed long-dated cashflows (maturity > last liquid point). Also, if you'd say receiver swaptions would be the way to go, could you ...
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12 views

Procedure to estimate time dependent volatility of forward exchange rates using correlation matrix of the same

I am trying to compute the Black Volatility of a currency swaption and I am required to draw up a correlation matrix for the forward exchange rates. Could someone guide me as to how I can either get ...
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47 views

Swaption pricing and strategies

I am looking for resources (books, papers, websites, etc.) that deal with Vanilla and Exotic swaptions from a more advanced and quantitative perspective. I am interested in both the pricing side (e.g. ...
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97 views

Vega for Constant Maturity Swaps

Why does a Constant Maturity Swap have a positive vega? Is it because of the convexity? How does one hedge it?
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1answer
197 views

What is upper left vol?

First time question, so please let me know if you have feedback for how I am asking. I am reading a market research piece and it makes reference to the performance of "vol, particularly the upper ...
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2answers
437 views

Forward swap rate calculation from the market

Following my question Swaption valuation across time using vcub where I wanted to know how to value a swaption across time using bloomberg's vcub, I remark that I have to calculate myself the ...
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1answer
322 views

Swaption valuation across time using vcub

On Bloomberg one has access to the rates vol cube with the VCUB function. For a given currency, today, one sees Black implied volatilities for swaptions of various expiries and strikes, for forward ...
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718 views

Swaption : Bloomberg Black implied volatility quotes and pricing in the Black model

I used a lot Bloomberg's VCUB for data, but never used its integrated swaption pricer "Quick Pricer for Swaptions", nor Bloomberg's "full" swaption pricer from "SWPM -OV". I am retrospectively quite ...
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1answer
211 views

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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105 views

SABR for swaptions

We calibrate SABR on each expiry and tenor combination using market data. (e.g. 1mx10y, 3mx10y etc.) Then how about the non-standard expiry like 2.5mx10y? Do I linear interpolate the alpha, beta, rou ...
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1answer
528 views

Volatility surface for Swaptions

I understand the volatility surface for swaption is built using implied vols of ATM swaptions. I had a question on the instruments that are used. Should the instruments used change depending on the ...
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101 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
49 views

Port a model dependent swaption sensitivity to a new model

I have a short rate model in which I have (among others) the following metric (for leverages) for a swaption : $$L = \frac{\frac{\partial}{\partial r}V_0^{\textrm{Swaption}}}{\frac{\partial}{\partial ...
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1answer
129 views

Can the value of a swaption at any time become more negative than the swaption premium?

I am interpolating swaption values as a function of parallel shifts in interest rate and have come across some peculiar shaped options among the data I have at hand. Here is an example of a simple ...
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1answer
690 views

CMS Pricing - Convexity Adjustment by Replication [closed]

I'm trying to learn CMS pricing, but didn't get the logic of this method. Previously cited articles about this method is pretty complex. I'd be glad if you can provide me with simpler articles or ...
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1answer
607 views

Positive convexity swaptions

Can I please understand why payer swaptions have positive convexity and receiver swaptions have negative convexity? I understand payer swaptions are akin to put options on bonds and put options have ...
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1answer
805 views

Swaption annuity factor

In H. Corb's book about interest rate swaps and oder derivatives, the present value of an T into n payer swaption is given via $A\sigma\sqrt{T}\left[\frac{1}{\sqrt{2\pi}}e^{-\frac{d^2}{2}}+d\,\...
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1answer
599 views

Modern market conventions for interpreting interest rate swaptions quotations in a negative interest rate environment

I have broker data and I see three sets of swaption vol data: Lognormal (Black) Shifted Lognormal (Black with displaced diffusion) Normal (Bachelier) The quotes are given by the following key (Date, ...
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1answer
591 views

Swaptions Gamma Interview Questions

A while ago, I interviewed for a trader role and was given the below assignment (I didn't get the job). I wanted to revisit the questions to learn from my mistakes and be better prepared next time. ...
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1answer
107 views

Spreadlock derivatives

I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
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1answer
240 views

HJM or Short rates model?

When market practitioners do prefer HJM models to short rates models when it comes to pricing derivatives (other than swaptions and caps, let say light exotics to exotics) ? To be more specific, ...
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1answer
576 views

Interest rates forward implied volatility models

I'm trying to find out which model to use to price a pur forward volatility product named VolBond marketed by structuring desks currently. Let me introduce the products first: Example 1: You pay 100 ...
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1answer
428 views

Bucketed gamma for swaptions

For a long 7Y1Y payer swaption, I understand that the overall gamma will be positive. I see gamma to be positive in 7Y tenor and negative in 8Y - why would that be the case? Intuitively, how would ...
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3answers
3k views

Forward implied volatility

Can one price accurately by only using vanilla options a derivative that is exposed/sensitive mainly to the forward volatility ? If it is impossible, why do we hear sometimes "being long a long ...
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2answers
3k views

Mid-curve swaption

I would like to know how the mid-curve swaption could inform us about forward volatility. In my understanding it is a swaption on a forward starting swap. Let us say the midcurve swaption expires ...
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1answer
724 views

1y10y vs. 10y1y Swaption

Say you have two identical payer swaptions, exception for their terms and tenors. In other words, suppose you have two payer swaptions: $1y10y$ and $10y1y$. All other things being equal, according ...
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259 views

Question on volatility equation for CMS pricing

In "Full implications of CMS convexity (Cedervall and Piterbarg, 2012)", a.k.a. "CMS: covering all bases (idem)", the authors develop a CMS model equipped with an annuity mapping function which ...
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2answers
148 views

Turning an amortising swaption into a normal swaption

Is there a way to enter a trading strategy in which the notional of the cashflows of an amortising swaption become all the same? For example, imagine the notional for the first four cashflows of an ...
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2answers
1k views

Put-call parity for cash settled swaptions

The Euro swaption market is changing from cash to physical settlement quotation in July 2018 $-$ see e.g. "Euro swaptions market prepares for pricign revamp (Risk, 2018)". When describing the issues ...
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1answer
272 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 ...
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0answers
287 views

The “I want to price swaptions” request

In a small buy-side structure I recently had the following request : "I want to trade swaptions, I need to price them". After a quick discussion the need is to price vanilla options on fix vs float ...
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2k views

Black-76 Model for Swaption Price and Greeks

I'm in the early stages of developing a swaption pricing model. Suppose $t_1$ is the tenor of the swap rate in years, $F$ is the forward rate of the underlying swap, $X$ is the strke rate of the ...
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1answer
783 views

What exactly is the nature of swaption vol data?

Newbie here. I'm curious about underlying nature of the swaptions data on Bloomberg. Define an arbitrary tenor and expiry swaption time series as $X$(vol type, currency, reference curve) = [ $x_{...
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1answer
970 views

Obtaining swaption prices from lognormal volatility quotes

I am working with the following dataset from quandl: https://www.quandl.com/databases/CSWO (I'm using the sample dataset only). My question is how to obtain the swaption prices from the quotes given. ...
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1answer
85 views

Can you determine USD swap rate movement probability from OTM swaption premiums?

E.g., the USD 1y x 4y swap rate is currently 2.84%. ATM receiver swaption , European exercise is currently at ATM premium of 1.15% while swaption premium at strike 1.5% is 0.15% or about 90% lower ...
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1answer
520 views

Change of Numeraire to price European swaptions

In the pricing of a European swaption, it is common to use the annuity factor $A(t)$ as the Numeraire. I was trying to write down the pricing formula via the bank account as numeraire to see if they ...
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2answers
1k views

Cash-settled swaptions

I was wondering, what is the motivation behind the payoff of the cash swaptions being multiplied by the swap annuity? $$c(S_{\theta, T})=\sum_{i=\theta+1}^{T}\tau_i\frac{1}{{(1+S_{\theta,T}(\theta))}^...
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0answers
1k views

market value of a forward premium swaption

For a cash-settled vanilla interest rate swaption traded with forward premium paid in full at expiry of the option, what should the "mark-to-market" be during the life of the option? Should it be ...
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2answers
602 views

Accreting swaption

Is there any literature on the maths behind the computation of the price of an accreting swaption in the LMM model (no monte carlo, closed formula or close enough...)? Thank you!!
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3answers
970 views

Receiver Swaption and Callable Bond - Literature Proof?

I'm looking for a formal proof that a receiver swaption is equivalent to a callable bond. I have only found some CFA Internet pages so far where this statement is considered as proven, tough I haven'...
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1answer
137 views

How to prrice a European swaption with floor?

I'm wondering how we can price a european swaption with a floor on the floating leg. Assuming that we use the HW 1 factor model, how we can simultaneously calibrate the swaption ( on swap rate ...