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Interest Rates > Swaption

IR European Swaption

Trade Type: Swaption
Trade Components: Option Data , Schedule Data , Leg Data with Leg Types Fixed and Floating

A swaption is an option which gives the buyer the right, but not the obligation, to enter into an underlying interest rate swap. The underlying swap may have varying notional, rates, and spreads during its lifetime.
With a European swaption, the buyer is only allowed to exercise the option and enter into the swap on the expiration date of the swaption.

There are two types of swaptions, payer and receiver:

  • Payer swaptions: the underlying swap pays fixed rate and receives floating rate.
  • Receiver swaptions: the underlying swap receives fixed and pays floating rate.

European swaption settlement can be either cash or physical delivery of the underlying swap.

This example is a long position in a European receiver swaption with cash settlement. Note that the put/call flag is ignored – payer/receiver is determined by the legs of the underlying swap.

IR Bermudan Swaption

Trade Type: Swaption
Trade Components: Option Data , Schedule Data , Leg Data with Leg Types Fixed and Floating

A swaption is an option which gives the buyer the right, but not the obligation, to enter into an underlying interest rate swap. In a Bermudan swaption the buyer is allowed to exercise the option and enter into the underlying swap on a predetermined set of dates rather than a single expiration date. The underlying swap may have varying notional, rates, and spreads during its lifetime.
Bermudan swaption settlement can be either cash or physical delivery of the underlying swap.

This example is a short position in a Bermudan receiver swaption with physical settlement. Note that the put/call flag is ignored – payer/receiver is determined by the legs of the underlying swap.