Questions tagged [swaption]
The swaption tag has no usage guidance.
158
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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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Greeks of a swaption using Brigo
I struggeling with calculating the delta of a swaption. In the interest rate case I usually mess around with the multiple cash flows over time so that the discounting is more complex than in the ...
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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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Volatility adjustment for SOFR/OIS caplet referencing LIBOR vol
Suppose that today the price of a 3m LIBOR caplet with 6m expiry has been calibrated with a particular implied volatility.
How would one go about thinking about an adjustment to that volatility to ...
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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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American Swaption Heding with Malliavin Calculus
Hedging American Swaption
Hello, I priced an American swaption using Black model with swap rates diffusion to find the european (call) price at t.
$$ C_t = (\delta \sum_{j=n+1}^{M+1} Z_t^{T_j})[R(t,...
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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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SABR Calibration: Normal vs Log-Normal Market Data
This question is about getting some clarification as to how to understand market quotes for normal & log-normal vols together with certain model assumptions.
So let us define
$C_{BS}(F_0,K,T,\...
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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 ...
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Libor Market Model Calibration
Currently I am doing a research on the plain vanilla multi-curve framework Libor Market Model meaning that no stochastic volatility is involved. I had the idea to calibrate to the swaption market. In ...
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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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Where can I find open swaption implied volatility data?
Anyone have a good place to find interest rate swaption implied volatility data? Does Bloomberg's python API allow access?
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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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swaption model for forward swap rate
I have another question about interest rates. In this case it is about swaption and how to come up with a pricing formula. For the rest of my question I use the notation from Brigo. The payoff of a ...
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Machine learning for non optimal behaviour
I was working on the pricing of complex bermudean swaption when I noticed that the exercise is often (very) subobptimal. It seems that the clients are more sensitive to past growth or drop in rates ...
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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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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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Is Cubic spline Interpolation on swaption Volatility arbitrage free?
If I use interpolation technique such as cubic spline to estimate volatility of Swaption with different strike,(with a given forward rate, swap and option maturity) will this be arbitrage free? What ...
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European Swaptions: does implied volatility of swap rates decreases both with start and tenor?
Does implied volatility of swap rates decreases both with start and tenor?
Given a Swaption price and a discount curve I calculate the swap_rate from the curve, then
I define implied volatility as ...
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RFR discounting - swaption compensation
Later this month the discount rate for EUR interest rate instruments changes from Eonia to EuroSTR. In October SOFR replaces EFFR. These changes will affect the value of uncleared swaptions and ...
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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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Implied/Realised Vol ratio for negative rates?
I'm trying to calculate the implied vs realised vol ratio for different swaptions across major currencies. This works fine for the likes of USD and GBP as rates are positive. However I'm struggling ...
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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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Swaption Volatility Cube arbitrage
How can I exploit an arbitrage by violating the following no-arbitrage condition (taken from the paper "Arbitrage-Free Construction of the Swaption Cube" by Simon Johnson and Bereshad Nonas):
Swptn(K,...
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Volatility Parametrization Libor Market Model - Underspecified Model?
Does the volatility parametrization that I have chosen give an underspecified model? Which volatility parametrization in the Libor Market Model would suit the best for the particular case described ...
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Which measure is used to price a swap?
When we value the floating leg of a standard vanilla swap, we replace the expectation of the future floating rates by the forward rates known today. However my understanding is that the forward rate ...
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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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Swaption Trading
In most Banks, the Traders are provided with ATM Implied vols across different Swaption Expiry's and different Underlying Swap Maturities.(The ATM Implied Vol Cube)
If the trader wants to trade an ...
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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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How to compute forward swap rates?
I am trying to compute shocks on the forward swap rates based on shocks to the swap rate curve (aiming at repricing consistently a set of swaps and swaptions based on a shock to the swap curve):
It ...
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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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Swaption pricing
I am trying to understand the pricing of various types of swaptions.
Suppose I have a swap that starts in 3 months time. How would I go about pricing a swaption on this swap in the following cases:
...
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Is there any template of hull white one-factor calibration model?
Recently I would like to look for excel template of hull white one-factor calibration model using swaption data for my urgent task? However, it seems that I cannot find suitable one in the web.
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Why is there an upper limit on the premium of an ATM (!) call swaption in the Black76 model?
Trying to imply Black76 (where the forward swap rate is log-normal) volatilities as Bloomberg does in their VCUB screen we see holes at two regions:
at short maturities due to negative rates which ...
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Valuation of option on amortized IR swap
I'm currently valuing swaptions using an implied volatility surface and Black's formula. This formula is given by
$$A (S\Phi(d_+) - K \Phi(d_-))$$
where
$$ d_{\pm} = \frac{\log\left(S/K\right) \pm \...
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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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Recalibrating SABR parameters for Swaption ATM volatility
I understand that the ATM volatility of Swaption moves quite frequently and the SABR will need to be recalibrated. Which parameter should I recalibrate?
Is there any financial meanings why we only ...
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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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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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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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Pricing Swaption Analytically using Libor Market Model
I was asked the following question in a recent interview: "(i) Express a forward swap rate in terms of forward Libor rates. (ii) Apply Ito's lemma to this expression to derive the process for the ...
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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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Why can a swap option be regarded as a type of Bond option?
Why can a swap option be regarded as a type of bond option?
My idea: Suppose the swap rate of the swaption is $s$. Now consider a bond option expiring at $T$ with strike, $(P_K)_t = \dfrac{1}{1+s(T-...
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Swaptions vol trading lognormally
What does this mean:
"Front-end vols have been trading lognormally while longer tails have traded normally."
I read this in a research report, in the context of ...
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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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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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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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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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Determining swaption prices using the characteristic function
There exist multiple techniques to determine call option prices that make use of the characteristic function. These techniques boil down to some integral expression of the option price in terms of the ...
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How to calibrate the Hull-White model using cap prices?
I'm given cap prices and swap rates, and i'm trying to calibrate the Hull-White model to them. I then want to use the model in order to price a swaption.
I know that the model can be calibrated from ...
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