Module swaptions
Expand description
Swaptions: the European option on a swap, and the Bermudan.
A swaption is an option on the underlying’s par swap rate: a payer (the
right to pay fixed K) is a call on the forward swap rate, a receiver a
put. The European is valued as annuity · Black-or-Bachelier(F, K, σ, T)
off the currency’s swaption vol surface — the forward swap rate F and the
fixed-leg annuity come straight from the underlying swap’s own par rate and
basis-point value, so there is no new swap arithmetic here — or, under the
Hull-White engine, by the Jamshidian decomposition the calibration already
prices with. The Bermudan rolls back on the Hull-White lattice, taking at
each exercise slice the larger of continuation and the co-terminal swap’s
model value at the node.
The underlying is a closed two-arm set: the vanilla IBOR swap and the OIS. The OIS arm is the post-LIBOR market — SOFR, €STR, SONIA — and is what the reference study is written on; a swaption type that admitted only the vanilla swap would exclude most of the market it exists for.
Every field is passive contract data. The strike is the option’s fixed rate; the underlying’s own fixed leg carries whatever rate it was built with and that rate does not enter the option’s value.
Structs§
- Bermudan
Swaption - A Bermudan swaption: a co-terminal swap exercisable on a set of dates, priced on the Hull-White lattice.
- Callable
Swap - A swap cancellable on Bermudan exercise dates.
- European
Swaption - A European swaption.
Enums§
- Callable
By - Who may cancel a
CallableSwap. - Swaption
Engine - Which model a European swaption prices under.
- Swaption
Error - A swaption that cannot be built.
- Swaption
Settlement - How a European swaption settles on exercise.
- Swaption
Underlying - The swap a swaption is written on: the closed two-arm set.
Functions§
- expiry_
years - Year fraction from
valuationto the option’s expiry, Act/365F — theTthe surface is read at and the formula discounts variance over. - validate 🔒
- Rejects a strike that is not a finite number, and an expiry on or after the underlying’s last fixed payment.