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DarienHacker

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tT
发表于 2011-7-13 17:15 | 只看该作者

receiver swaption and call option on a bond

equivalent, receive, option
Hi, all.


R43 P.519 CFAI

"A receiver swaption is equivalent to a call option on a bond."

the right to receive fixed is equivalent to the right to buy back a bond for the issuer???

Anyone can explain the concept?

Thanks in advance!
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Darien

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2#
发表于 2011-7-13 17:15 | 只看该作者
Right to receive Fixed happens when the Strike rate > Fixed Rate of the Swap on which the option (Swaption) is created. This would be when the Rates are increasing.

Call Option on a Bond - Issuer has the Right to call the bond - when the rates increase so as to make issuance of a new bond cheaper in the new regime - and then it makes sense for the Issuer to retire the existing bond and issue a new one at the lower rate.

So both of these are similar...

CP

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infinitybenzo

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3#
发表于 2011-7-13 17:15 | 只看该作者
Bond prices have inverse relationship with interest rates. A call option holder on bonds makes money when interest rates decrease.


A fixed rate receiver (floating rate payer) in a swap also makes money with decrease in interest rates.

A receiver swaption gives the right to enter into a swap with a right to receive fixed interest rate.

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Iginla2011

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4#
发表于 2011-7-13 17:15 | 只看该作者
I seem to have written something wrong... was writing this from memory. I have not yet reached this section. so if I am wrong, please ignore.

CP

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zwjy

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5#
发表于 2011-7-13 17:15 | 只看该作者
Thanks, cpk123, mitchells, FinNinja !!

All explanation is helpful!!

thanks again.

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strikethree

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6#
发表于 2011-7-13 17:15 | 只看该作者
Another good one.

Is the receiver swaption like a interest rate put option?

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Analyze_This

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7#
发表于 2011-7-13 17:15 | 只看该作者
deriv108 Wrote:
-------------------------------------------------------
> Another good one.
>
> Is the receiver swaption like a interest rate put
> option?

Yes. You will benefit from a drop in interest rates for both these instruments.

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