In terms of put and calls what is a Pay Swaption equivalent to and what is a recevier swaption equivalent to?? I’m having a hard time understanding this concept. Cheers
you enter into a payer swaption to pay fixed. you would enter into it if the price of the fixed portion is < Strike Price. If you are thinking in terms of Put or Call options on a bond – The fixed price would fall below the strike price for a bond when the Interest rate rises - and you have the option to then PUT the bond back. §ayer Swaption=§ut option on BOND So Re©eiver Swaption - likewise would be ©all option on Bond.
Are you sure? I have always heard of call swaptions and put swaptions. and the call is the pay fixed, which makes this confusing. also, a payer swaption seems alot like a interest rate cap (which is similar to a call).
I guess I am thinking of it as a call option on interest rates, as opposed to bonds.
The call option on interest rates is an immediate risk/reward situation i.e. effective immediately. If you want to hedge an exposure that is going to happen at some time in the future, you need the swaption. The holder( buyer ) has a right to enter the swap when the swaption expires.
cpk123 Wrote: ------------------------------------------------------- > you enter into a payer swaption to pay fixed. > you would enter into it if the price of the fixed > portion is < Strike Price. > > If you are thinking in terms of Put or Call > options on a bond – The fixed price would fall > below the strike price for a bond when the > Interest rate rises - and you have the option to > then PUT the bond back. > > §ayer Swaption=§ut option on BOND > > So Re©eiver Swaption - likewise would be ©all > option on Bond. Thanks yet again, a lot clearer in my head now!