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’.
The input form to create new Swaptions contains the following fields (the detailed description of all fields can be found in the Reference page).
|Party||Only entities in the current organization that the current user can manage.|
|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.|
The notification date of the Swaption can be configured in Draft mode.
Underlying Swap Transaction
|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
|Day Count Convention||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
|Swap Floating Leg Index||Floating Index of the underlying swap.|
|Day Count Convention||None.|
|Frequency||Frequency of the Floating Leg of the Underlying Swap.|
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.
|Clean Market Value|
|Interest Rate Sensitivity (100 bp)|
|Mark To Market|
|Outstanding Notional Amount|
|Outstanding Notional Amount (Start of Day)|
|Term To Maturity|
|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 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.|