Hi! What is the value of the underlying swap cash settlement in a swaption where strike is K, market swap rate is S, yearly payments and maturity of swap is M? -Kim-
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Got it payer swap: V=max([1-d(0,T)-k*sum(d(0,t))]*N , 0) receiver swap: V=max([(1+k)*d(0,T)+k*sum(d(0,t))-1]*N , 0) k=strike d(0,t)=discount rate (0,t). N=notional principal ...
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