With respect to Schweser Volume 1 Exam 2 Afternoon Session question 18.6, when someone says a one-year payer swaption, does that mean you have the option to enter a pay fixed swap for the next year or does that mean you have the option to enter a one-year swap? Totally confused.作者: ayaz_mahmud369 时间: 2013-4-7 11:38
Here ya go, remember this:
“Swaption” = “Fixed”
That should help you out…………作者: bkballa 时间: 2013-4-7 11:39
My question is with regards to timeframe. I know the structure of the swaption. I’m asking if a one-year swaption represents one year until expiration or a one-year swap once exercised. Make sense? Thanks.作者: cfalevel2011 时间: 2013-4-7 11:40
In one year, you get to enter a swap at the swaption’s price.
That’s all there is to it…
J.作者: xilinx_altera 时间: 2013-4-7 11:42
For the example, the option (or swaption) to enter as the fixed payer swap will expires in one year, but the hedge should be a three year quarterly pay fixed receive floating swap. The question is not clear what is the term of the floating rate of LIBOR + 1.5% but I assumed it is a 3 year LIBOR + 1.5% (variable since it depends on LIBOR but fixed bec it is not subject to quarterly or annual reset).作者: malbec 时间: 2013-4-7 11:43
Fair enough - thanks for the help. I think it was a pretty confusing question.
