In terms of put and calls what is a Pay Swaption equivalent to and what is a recevier swaption equivalent to??
I'm having a hard time understanding this concept.
Cheers作者: liquidity 时间: 2011-7-13 15:29
you enter into a payer swaption to pay fixed.
you would enter into it if the price of the fixed portion is < Strike Price.
If you are thinking in terms of Put or Call options on a bond -- The fixed price would fall below the strike price for a bond when the Interest rate rises - and you have the option to then PUT the bond back.
(P)ayer Swaption=(P)ut option on BOND
So Re(C)eiver Swaption - likewise would be (C)all option on Bond.
CP作者: brainsX 时间: 2011-7-13 15:29
I guess I am thinking of it as a call option on interest rates, as opposed to bonds.作者: ayaz_mahmud369 时间: 2011-7-13 15:29
The call option on interest rates is an immediate risk/reward situation i.e. effective immediately.
If you want to hedge an exposure that is going to happen at some time in the future, you need the swaption.
The holder( buyer ) has a right to enter the swap when the swaption expires.作者: ninja1024 时间: 2011-7-13 15:29
cpk123 Wrote:
-------------------------------------------------------
> you enter into a payer swaption to pay fixed.
> you would enter into it if the price of the fixed
> portion is < Strike Price.
>
> If you are thinking in terms of Put or Call
> options on a bond -- The fixed price would fall
> below the strike price for a bond when the
> Interest rate rises - and you have the option to
> then PUT the bond back.
>
> (P)ayer Swaption=(P)ut option on BOND
>
> So Re(C)eiver Swaption - likewise would be (C)all
> option on Bond.
