Please explain this statement equivalent, option

parott

A receiver swaption is equivalent to a call option.

ayodayo

my bad, I read his reply as if he was saying that the bond price will be lower/cheaper, but you said it right, nicely too: receiver swaption = right to receive fixed-rate = valuable if interest rate falls = call option on bond

YAhmed

Dreary - it's correct. Call option on bond means you get to buy the bond at a cheaper price. If the rate is below the coupon, the bond should be traded at a premium. If you have a call option, you could buy it for a lower price.

AndrewUNH - Think of swaps as two bonds. The receiver swap holder buys a fixed paying bond and pays a float-rate bond in return.

Rasec

I agree, they don't need to give extra details when the answer is possible to find without them...as well the answers are most likely given the information given...no need for irrelevant information

RMontgomery

They won't...they want you to figure out what makes sense. Only call on bond will make sense here.

5566

the confusion for me in this problem which i think you got from either schweser or stalla, is it doesn't say a call option on a bond or on rates. They would specify on the test i believe.

jarobi04

canadiananalyst Wrote:
-------------------------------------------------------
> No it's the right to receive fixed not floating so
> you would benefit if the interest rate falls. You
> would pay a cheap rare and receive a high rate


oh yeah, my bad.

BelalM

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Edited 1 time(s). Last edit at Wednesday, June 1, 2011 at 02:13AM by Damil4real.

redskins44

No it's the right to receive fixed not floating so you would benefit if the interest rate falls. You would pay a cheap rare and receive a high rate

b_sea93

but if u r receiving floating, won't you be getting less money when interest rate falls? And you'll be paying a fixed rate that would be higher than the lower interest rate? How's that what you want?