Swaption

C

crosstheevil

New member
Joined
Jul 6, 2015
Messages
0
Reaction score
0
I’m trying to compare short receiver swaption and long payer swaption. Am I correct? Thanks
short receiver swaption = short call option on the bond = (exercised when interest rates are low)
long payer swaption = long put = (exercised when interest rates are high)
 
You’re correct that receiver swaptions will be exercised when interest rates are low and payer swaptions will be exercised when interest rates are high. In that sense, they’re similar to call options and put options (respectively) on bonds.
 
S2000 to expand a little further to the question… When calculating the duration of a swap.
The variable side is multiplied by .5 of the pmt period. For the Fixed side I’ve seen a few times where the Fixed Duration is multiplied by .75? Is the .75 part of the formula or does something trigger it?
 
Using 75% of the maturity of a fixed-rate bond as its duration is a simple rule of thumb; sometimes it’s accurate, sometimes it’s not.
Rest assured that on the exam, if you need to calculate the duration of a swap, they’ll give you the duration of the fixed-rate leg.
 
S2000magician wrote:
Using 75% of the maturity of a fixed-rate bond as its duration is a simple rule of thumb; sometimes it’s accurate, sometimes it’s not.
Rest assured that on the exam, if you need to calculate the duration of a swap, they’ll give you the duration of the fixed-rate leg.
Click to expand...
ok thanks, i’ll keep an eye out for the duration of the “fixed-rate leg”
 
You must log in or register to reply here.
Back
Top