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Swaption Structure
A swaption is an option to enter into a specified interest rate swap to start at a pre-determined future date. To some extent, swaptions are similar to forward swaps except that the swaption buyer has the option to enter into the swap on the effective date. A swaption is an option to pay or receive Libor on a swap beginning in the future. Therefore, the ‘money’ for a swaption is the forward swap rate.
Swaptions can limit downside risk for users by allowing them to switch from a fixed to a floating rate (or vice versa) without limiting potential benefits associated with favorable movements in interest rates. Swaption buyers pay a premium to the swaption writer in return for this option.
Swaptions versus Caps
Like a cap, a swaption is priced based on possible changes in future levels of interest rates (such as Libor).
A swaption offers a single option on a whole series of interest rate resets. A cap, on the other hand, offers multiple options on successive interest rate resets. Swaptions are usually cheaper than caps as there is only one option that expires at the beginning of the forward period.
Settlement Types
If a swaption is in the money, the buyer may choose to exercise it. If so, standard ISDA documentation requires that the holder notify the writer of the intention to exercise. Depending on the market environment, the swaption buyer may elect to exercise and monetize the value of the swap by unwinding the swap immediately rather than continuing the swap for three years.
Pricing Approach
The pricing of a swaption can be approached in a similar way to that of a caplet or floorlet by focusing on a forward swap rate rather than a forward Libor as the underlying asset for an option.
The major difference between a swaption and a caplet or floorlet lies in the interest periods covered. While a swaption covers multiple interest periods, a caplet or floorlet covers only a single interest period.
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[此贴子已经被作者于2008-8-3 14:18:22编辑过]
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