When we value swaptions are we just valuing the payments on the option to enter into the swap? And if so, why is the notional is NOT taken into account when discounting and getting to the nets? If we value a plain vanilla swap, fixed for floating, the notional gets taken into account when valuing the swap and who is paying/receiving money. Why wouldn’t the notional be accounted for, let’s say a payer swaption, that has the option to pay fixed and receive floating?? Is it because we are comparing fixed for fixed when valuing a swaption even if the swap we have the option to enter into is fixed for floating?? Please if someone can clarify. Thanks!!
Anyone?