| |
Swaptions can be for American, European or Bermudan exercise. They can be physically settled, in which case an option is actually entered into upon exercise.
Swaptions Options on rate swaps. The buyer of a swaption has the right to enter into an agreement by some specified date in the ' future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a .
It is used for pricing interest rate derivatives, especially exotic derivatives like Bermudan swaptions, ratchet caps and floors, target redemption notes, autocaps, zero coupon swaptions, constant maturity swaps and spread options, among many others.
A swaption may be used, like any other option, as either a hedge or speculatively. Like other derivatives of derivatives, swaptions are complex instruments that are hard to value.
Categories:
Securities & Funds ...
The work soon proved to have widespread applications, and helped inspire the creation of ever more complicated derivatives, (swaps, swaptions, etc.) which in turn has kept theorists busy building newer models.
DERIVATIVES - Financial securities whose value is derived from another "underlying" financial security. Options, futures, swaps, swaptions, and structured notes are all examples of derivative securities.
Options, futures, swaps, and swaptions are common derivatives used for hedging purposes. All CMOs are derivatives. There are many derivative instruments, and new ones are developed often. See underlying.
Derivative products it uses include interest rate swaps and options to enter interest rate swaps ("pay-fixed swaps", "receive-fixed swaps", "basis swaps", "interest rate caps and swaptions", "forward starting swaps").
 See also: Risk management, Term structure, Yield curve, Interest rate cap, Values
  
|
RSS
