aidebaobao

was discussed in another thread too...

payer swaption - would be used to convert your floating rate payments on your bond to fixed rate payments.

when you do that - you are only making a fixed payment every period. Floating payment received on swap goes to pay the floating payment on your bond.

with this - you have no cash flow risk. you know exactly the amount of cash flow you need to make.

But when interest rate increases - the value of your floating rate bond falls - so you have market value risk.

CP