Swaption

A swaption is an option which grants the right to enter into a swap.
There are two types of swaption contracts:

    • Payer swaption: it grants the owner the right to enter into a swap in which they will pay the fixed leg, and receive the floating leg.
    • Receiver swaption: it grants the owner the right to enter into a swap in which they will receive the fixed leg, and pay the floating leg.

 

 

Only European Swaptions are managed by Fairways Debt. American or Bermudan Swaptions are not managed yet.

Classification in Fairways Debt

Transaction Nature is ‘DERIVATIVE’.
Transaction Type is ‘SWAPTION’.

Input form

The input form to create new Swaptions contains the following fields (the detailed description of all fields can be found in the Reference page).

Transaction

Field Comments
Transaction Reference None.
External Reference None.
Notional Amount None.
Currency None.
Premium None.
Party Only entities in the current organization that the current user can manage.
Counterparty None.
Buy/Sell ‘Buy’ means that the Party is the owner of the swaption. ‘Sell’ means that the Counterparty is the owner of the swaption.
Payer/Receiver ‘Payer’: the owner of the swaption has the right to enter into a swap in which they pay the fixed leg and receive the floating leg. ‘Receiver’: the owner of the swaption has the right to enter into a swap in which they receive the fixed leg and pay the floating leg.
Strike Fixed rate of the underlying swap.

Dates

Field
Trade Date
Start Date
Maturity Date

The notification date of the Swaption can be configured in Draft mode.

Underlying Swap Transaction

Field Comments
Swap Start Date Start Date of the underlying swap. Usually two business days after the Swaption Maturity Date.
Maturity Date Maturity Date of the underlying swap.
Payment Date Adjustment Payment Date Adjustment of the underlying swap.

Underlying Swap Fixed Leg

Field Comments
Day Count Convention None.
Adjustment None.
Frequency Frequency of the fixed leg of the underlying swap.

The rate of the fixed leg of the underlying swap is, by definition, equal to the Strike of the Swaption.

Underlying Swap Floating Leg

Field Comments
Swap Floating Leg Index

Floating Index of the underlying swap.

Note: A custom index cannot be selected when creating a swaption.

Day Count Convention None.
Adjustment None.
Frequency Frequency of the Floating Leg of the Underlying Swap.

Workflow Actions

Swaptions support the following Workflow Actions:

    • Early Termination
    • Exercise: you can choose between a ‘Cash Settlement’ or a ‘Physical Delivery’. In such a case, the system generates the underlying swap.

 

Available Indicators

Spot Indicators

Indicator
Accrued Fees
Accrued Interest
Clean Market Value
Outstanding Transaction
Interest Rate Sensitivity (100 bp)
Mark To Market
Outstanding Notional Amount
Outstanding Notional Amount (Start of Day)
Term To Maturity
Committed Amount
Exercise Probability

Periodic Indicators

Indicator Comments
Accrued Fees at Period Start None.
Accrued Fees at Period End None.
Accrued Fees over the Period None.
Accrued Interest at Period Start None.
Accrued Interest at Period End None.
Average Outstanding Notional Amount None.
Average Rate A single swaption does not have a value for the Average Rate indicator. However, it has an impact on the aggregated value of the Average Rate indicator for the whole portfolio.
Effective Rate (incl. Fees) A single swaption does not have a value for the Effective Rate indicator. However, it has an impact on the aggregated value of the Effective Rate indicator for the whole portfolio.
Fees Paid over the Period None.
Financial Costs (incl. Fees) None.
Interest Expense None.
Interest Paid over the Period None.
Outstanding Notional Amount at Period Start None.
Outstanding Notional Amount at Period Start (Start of Day) None.
Outstanding Notional Amount at Period End (Start of Day) None.
Outstanding Notional Amount at Period End None.
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