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Aug 28

Swaption valuation

Posted by abiao at 16:10 | Code » VBA/Excel | Comments(4) | Reads(35582)
A swaption is an over-the-counter  derivative on a swap. Normally, the underlying swap is a vanilla interest rate swap. Nevertheless, "swaption" could be applied to relate to a derivative about whatever kind of swap.

Swaptions could be   European, American, or even Bermudan type. They can be physically settled, in which case a derivative is really participated into at exercise date. They can  be cash settled as well, in which example the market price of the underlying swap is cleared at maturity.

it is frequently more handy to address in terms of two common kinds of swaption:

A payer swaption is a call option on a pay-fixed swap, the swaption holder has the right to pay fixed rate on a swap.

A receiver swaption is a call option on a receive fixed swap, the swaption holder has the right to receive fixed rate on a swap.

a spreedsheet showing how to price a swaption using Black's model can be downloaded at:

Hi abiao,I was interested in looking at your spreadsheet, but I am unable to download it from the link you provided.Thanks
I updated the link, the original one is dead.
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