Valuation Of Swaption: Back To School

imagesContinuing with our last post on Swaption, we are here to discuss the “Valuation of Swaption” today. A swaption can be settled in 2 ways as :-

  1. Physical settlement:- when an option is exercised to go ahead with the underlying Interest rate swap; and
  2. Cash Settlement:- When an option is exercised for the cash value and the market value of the underlying swap changes hands upon exercise.

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