In the text, it says to exit a swap early, you should enter a new swaption with exact characteristics of the existing swap, but take the other counterparty’s position?
If the original swaption you purchsaed matured, and you exercised… and you are now IN the swap, wouldn’t it make more sense to find an offsetting swap? What is the benefit of purchasing the option when you know you want to get out?
If you have a swaption you’re assured ahead of time that you can terminate, and you know the price.
Waiting for an offsetting swap has risks: maybe no counterparty will step forward. Maybe it’ll be too expensive.
It’s all about risk management: how much uncertainty can you bear, and what are you willing to pay to reduce it?
I see, so the manager doesn’t necessarily know for sure if they want out. He just wants the optionality, gotcha. I thought this was the case where you knew you had to unwind now.