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Priced from a Deal Map

A swaption is an option on a swap. For each swaption instrument, we therefore need to fully define the underlying swap that will be entered into if the swaption is exercised.

The European swaption pricing function can be used with any of the supported swap types as the underlying asset. In order to achieve this, we leave the calculation of some of the swaption parameters to the swap functions themselves. This significantly reduces the number of parameters required by the swaption functions.

 

The following steps are needed to value any swaption:

  • Use the appropriate swap function to generate the par swap rate. Set the coupon for the fixed leg equal to the exercise price for the swaption (the contract rate for the swap that the swaption will exercise into).
  • Generate the "Swap Map", a parameter of the swaption function. This consists of three columns of data: the notional principal for each underlying swap payment, the tenor of each underlying swap payment, and the appropriate discount factor for each underlying swap payment. The swap may can either be generated manually or using the oIRSwpn_Map() function.
  • Call the swaption price function.

 

In This Section

oIRswpn_Price( ) - Interest Rate Swaption Price Function

oIRswpn_Map( ) - Interest Rate Swaption Map Function

oIRswpn_IV( ) - Interest Rate Swaption Implied Volatility Function

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