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Swap definition of Bermudan Swaption

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Swap definition of Bermudan Swaption

Mariano Zeron
Hi,

I've been trying to implement the bermudan swaption pricer provided by quantlib. As a guide I have used the example that comes with quantlib. However, I still have some questions regarding how to define the swap on which one defines the bermudan swaption. I'll explain with an example.

Say I am interested in pricing a bermudan swaption today ( variable todaysDate in the example from quantlib), that started a week ago (variable settlementDate), expires in five years from commencement date (so almost five years from now), can be exercised every year (therefore you have five chances to exercise it) and the swap you have the right to exercise has a maturty of ten years, once exercised.

In the example provided by quantlib, the swap that is passed to the Bermudan Swaption constructor has to be instantiated, which forces you to pass a date when it starts. In the example the starting date is the same as the first date when it can be exercised. Is this how it must be done? What happens in a year and a half from now, when the first exercise date of the Bermudan Swaption is in the past? Do you now have to pass a Swap with start date on the second exercise date?

Any help trying to clarify these points would be highly appreciated.

Regards

Mariano
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Re: Swap definition of Bermudan Swaption

Luigi Ballabio
Hello Mariano,
    no, the swap doesn't need to start on the first exercise date.  You can pass a swap that starts earlier.

Luigi


On Tue, Jan 31, 2017 at 9:50 AM Mariano Zeron <[hidden email]> wrote:
Hi,

I've been trying to implement the bermudan swaption pricer provided by
quantlib. As a guide I have used the example that comes with quantlib.
However, I still have some questions regarding how to define the swap on
which one defines the bermudan swaption. I'll explain with an example.

Say I am interested in pricing a bermudan swaption today ( variable
todaysDate in the example from quantlib), that started a week ago (variable
settlementDate), expires in five years from commencement date (so almost
five years from now), can be exercised every year (therefore you have five
chances to exercise it) and the swap you have the right to exercise has a
maturty of ten years, once exercised.

In the example provided by quantlib, the swap that is passed to the Bermudan
Swaption constructor has to be instantiated, which forces you to pass a date
when it starts. In the example the starting date is the same as the first
date when it can be exercised. Is this how it must be done? What happens in
a year and a half from now, when the first exercise date of the Bermudan
Swaption is in the past? Do you now have to pass a Swap with start date on
the second exercise date?

Any help trying to clarify these points would be highly appreciated.

Regards

Mariano



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