Component 
Resolution  IRO Pricing 




Function Definition 
oIRswpn_BK(ValueDate, SwaptionType, ExerciseStyle, ExerciseSchedule, Volatility, MeanReversion, StepsPerCoupon, SwapEffective, SwapMaturity, SwapStubDates, Notional, Coupon, Frequency, AccrualBasis, BusDayConv, InterpMethod, ZeroCurve, Holidays, Output) Calculates the swaption value. Can also return the delta, gamma, theta or vega values. 




IRO Types 
Interest rate swaptions. 




Function Parameters 



ValueDate 

Valuation date of the swaption. 

Date 



SwaptionType 

Payer or Reciever 

Enumerated Constant 

1  Payer 

ExerciseType 

European, Bermudan or American. 

Enumerated Constant 

1  European 

ExerciseSchedule 

Lists exercise dates and the termination fee associated with each date. For European swaptions, only the last date is used. For American swaptions, every date between the first and last is assumed to be a valid exercise date. 

Curve 



Volatility 

Annualised volatility of the underlying swap rate, expressed as a decimal. 

Double or Curve 

Volatility >0% 

MeanReversion 

Requires the estimate of the mean reversion rate. 

Double 

>0 

StepsPerCoupon 

Determines the number of steps used to construct the lattice. The total number of branches in the lattice is also related to the number of coupon periods outstanding between the valuation date and the maturity date of the underlying swap. 

Long


Steps per Coupon > 0


SwapEffective 

The date from which the underlying swap begins to accrue interest. Also represents the first swap reset date and is needed because the swaption may feasibly be valued prior to the start of the swap. 

Date


SwapEffective < SwapMaturity


SwapMaturity 

The maturity date of the underlying swap. 

Date 

SwapMaturity > SwapEffective 

SwapStubDates 

Only needed if the underlying swap has an odd first or last period. 

Array of Dates 

2 Dates entered as an array. 



First Coupon Date: Date that the first coupon is paid (if swap does not have an odd first period, leave blank). 



F.C.D > SwapEffective 



Penultimate Coupon Date: Date that the penultimate coupon is paid (if swap does not have an odd last period, leave blank). 



P.C.D > SwapEffective 

Notional 

The face value of the swap. Assumed to be fixed for the life of the swap. 

Double 



Coupon 

The fixed coupon rate for the fixed leg of the swap. 

Double 



Frequency 

The frequency of the coupon payments. 

Enumerated Constant


1  Annual 

AccrualBasis 

Basis for determining coupon amounts and accrued interest. 

Enumerated Constant 

1  Act/Act (actual) 

BusDayConv 

Business day convention. Used to determine the start and end date of each coupon payment period. 

Enumerated Constant 

1  No Adjustment 

InterpMethod 

Method used to calculate rates and discount factors from the supplied zero curve. 

Enumerated Constant 

1  Discount Factors 

ZeroCurve 

The zero curve that is used to project and discount cash flows. 

Curve 



Holidays 

Schedule of nonbusiness days (excluding weekends). 

Date Range 

Leave blank if not applicable 

Output 

Indicates which result (or set of results) will be displayed in the worksheet. When returning more than one value, the function must be entered as an array function. 

Enumerated Constant 

0  All five outputs 









Function Outputs 



Output 

Description 

Swaption Value 

The fair value of the swaption. 

Delta 

Delta measures the risk associated with a shift in the zero curve. This can be approximated by revaluing the swaption based on a zero curve that has been shifted up by 1 basis point. 

Gamma 

Defined here as the second derivative of the option value with respect to a parallel shift in the zero curve. 

Theta 

Defined as the sensitivity of option value with respect to time. This is estimated by revaluing the option one day after the specified valuation date. 

Vega 

Defined as the sensitivity of option value with respect to volatility. This is estimated by revaluing the option using an incremented volatility input. 
See Also 
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