Talk:Swaption

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Lingo[edit]

"Swaptions are relatively vanilla instruments in today's financial markets", I like the financial lingo. - Jerryseinfeld 00:19, 30 Nov 2004 (UTC)

"Bermudan"[edit]

Not sure if that is correct. The proper adjectival form of "Bermuda" is "Bermudian", so if it's the adjective you want, that's the correct spelling. Noel (talk) 20:11, 23 September 2005 (UTC)[reply]

Bermudan is the correct adjective.

Zaire[edit]

Zaire is since 1997 The Democratic Republic of the Congo, but I guess it doesn't matter for the example.

Swaps vs. Swaptions[edit]

The two examples fail to clarify the reason why one would want an option on a swap vs. just a swap - there's a cash flow mention in the first example, and none in the second. The swap hedges the interest-rate contingency - what is the option itself hedging?

Also - these examples suggest that swaps themselves are just bets on interest rate directions. Swaps aren't necessarily pure bets on the direction of interest rates - they are also used to hedge interest-rate-sensitive liabilities without requiring the purchase of large quantities of underlying fixed- or variable-rate assets. Gary 15:21, 26 September 2005 (UTC)[reply]

Agreed. This example does not illustrate the true use of swaptions. A better (but more complicated example) would be to point out how a large portfolio of mortgages is inherently short optionality (to the homeowner who can prepay or refinance their mortgage) and how this property causes difficulty when hedging the interest rate exposure ("duration") of said portfolio, especially as rates change. While the owner of these mortgages is compensated with an increased yield over similar bonds which are not short optionality, the owner may wish to sacrifice some of this increased yield ("carry") by purchasing swaption straddles. —Preceding unsigned comment added by 66.171.18.72 (talk) 02:46, 11 January 2008 (UTC)[reply]

Why only rates?[edit]

Swaptions are available for all kinds of underlying instruments, not just interest rates. 199.50.29.40 20:18, 30 January 2007 (UTC)Desi[reply]

Agreed, swaptions are also available for credit defaults, for instance. The definition should definitely be changed to option on a swap, not necessarily interest rate swap.Dnpurdy 14:57, 8 February 2007 (UTC)dnpurdy[reply]

I disagree - the term swaption usually means that the underlying is an interest rate swap. An option on a credit default swap is called a CDS option

Bermudan and Europeran swaptions were removed by an anonymous user[edit]

Bermudan and Europeran swaptions were removed by an anonymous user. I wasn't able to find any explanation of this action, but this guy's edits on Wikipedia are pretty pointless (also on this article he changed Congo with Mexico). Also now the page is incorrect, as it mentiones three swaption types but lists only the American one. 212.123.204.91 14:32, 22 June 2007 (UTC)[reply]

First Known Swaption[edit]

Is there a source for the claim that the first swaption was executed in 1983 by William Lawton? If not this should be deleted

Quoting convention[edit]

What is the quoting convention for swaptions, e.g. MxN? Is it the same for forward rate agreements? Finnancier (talk) 12:18, 15 December 2007 (UTC)[reply]

The quoting convention for swaptions is expiry then tenor, ie an option to pay or receive (a straddle) on 5y swap rate that expires in 3 months is called "3 month 5 year", normally written as "3m5y". When inquiring about this structure a trader might say "Where is your 3m5y market?". —Preceding unsigned comment added by 66.171.18.72 (talk) 02:39, 11 January 2008 (UTC)[reply]

Examples[edit]

The examples given are unrealistic. Individuals do not use swaptions in this manner. The section should be rewritten giving institutional examples

Valuation[edit]

The Valuation section needs rewriting; it is poorly written but also doesn't make sense. Market standard practice is to price European Swaptions with Black Model using an implied volatility surface. Lattice models and other interest-rate models are used to price Bermudans and other exotics, and typically calibrated to the European Swaption prices. — Preceding unsigned comment added by RomQuant (talk • contribs) 09:15, 6 February 2019 (UTC)[reply]