How does this work? Where am I going wrong in my *theory* or deduction? Thanks. Call option on interest means that you will pay the fixed rate, so you gain when interest rate goes up. A cap on interest rate is equiv to call on libor. If interest rate goes up,t hen your cap is in the money. So doesn’t it follow that if interest rate goes up, your receiver swaption is out of money (opposite of a call option). Therefore, a receiver swaption is a put option.
Search; this exact question has been asked 30 times in the past 24 hours.
this was probably asked over 10 times already. the book is referring (CFAI’s page 261) to call option on bond: i.e., fixed swaption = put on bond = call on IR receiver swaption = call on bond = put on IR
I don’t like this either, but the key is that CFAI doesn’t want you to think of its value behavior relative to interest rates, but rather to a bond. So receiver swaption gains value when interest rates drop - just like a bond.
fixed payer is equal to going long interest rate call, short interest rate put. receiver is opposite
dam, i guess this is just one of those things u have to memorize
try to remember Fixed= LIRCSIRP fixed is “lurcksurp”= long interest rate call short interest rate put. hey, whatever works.