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LaserWire
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Swaption settlement trend

January 26th, 2012, 8:37 am

A few years ago the majority of swaptions traded as cash-settled. It appears that the trend has changed towards physical settlement (ie. Entering into the underlying swap). Is this observation correct?
 
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Martinghoul
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Swaption settlement trend

January 26th, 2012, 8:44 am

No... The conventions w/regard to cash/physical settlement haven't really changed. Not to my knowledge anyways.
 
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DevonFangs
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Swaption settlement trend

January 26th, 2012, 10:30 am

QuoteOriginally posted by: MartinghoulNo... The conventions w/regard to cash/physical settlement haven't really changed. Not to my knowledge anyways.Anyway, w/o the "s"
 
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DevonFangs
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Swaption settlement trend

January 26th, 2012, 10:31 am

If you're referring to non deliverable markets yes, swaptions are in general physically settled.
 
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Martinghoul
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Swaption settlement trend

January 26th, 2012, 10:58 am

QuoteOriginally posted by: DevonFangsQuoteOriginally posted by: MartinghoulNo... The conventions w/regard to cash/physical settlement haven't really changed. Not to my knowledge anyways.Anyway, w/o the "s" I like "anyways" better... Makes me feel younger .
 
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LaserWire
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Swaption settlement trend

January 26th, 2012, 1:03 pm

Ok, that fits. It is on recent Emerging Market swaptions where the settlement has been physical.Does anyone know which convention applies to JPY swaptions? I have always understood them to be cash-settled typically, at least for the purposes of interpreting market vol quotes.
 
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Martinghoul
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Swaption settlement trend

January 26th, 2012, 1:32 pm

QuoteOriginally posted by: LaserWireOk, that fits. It is on recent Emerging Market swaptions where the settlement has been physical.Does anyone know which convention applies to JPY swaptions? I have always understood them to be cash-settled typically, at least for the purposes of interpreting market vol quotes.From what I know, the JPY settlement convention is actually physical.
 
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DevonFangs
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Swaption settlement trend

January 26th, 2012, 1:35 pm

QuoteOriginally posted by: MartinghoulQuoteOriginally posted by: LaserWireOk, that fits. It is on recent Emerging Market swaptions where the settlement has been physical.Does anyone know which convention applies to JPY swaptions? I have always understood them to be cash-settled typically, at least for the purposes of interpreting market vol quotes.From what I know, the JPY settlement convention is actually physical.Any reason? For the non deliverable market I understand it's because this way you don't have to specify which curve use for discounting.
 
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Martinghoul
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Swaption settlement trend

January 26th, 2012, 2:16 pm

QuoteOriginally posted by: DevonFangsQuoteOriginally posted by: MartinghoulQuoteOriginally posted by: LaserWireOk, that fits. It is on recent Emerging Market swaptions where the settlement has been physical.Does anyone know which convention applies to JPY swaptions? I have always understood them to be cash-settled typically, at least for the purposes of interpreting market vol quotes.From what I know, the JPY settlement convention is actually physical.Any reason? For the non deliverable market I understand it's because this way you don't have to specify which curve use for discounting.Not sure... I think that's sort of how things have always been done. Same as in USD. As to the curve, I guess whether you need it or not would depend on which cash-settlement method you use.
Last edited by Martinghoul on January 25th, 2012, 11:00 pm, edited 1 time in total.
 
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DevonFangs
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Swaption settlement trend

January 26th, 2012, 4:56 pm

QuoteOriginally posted by: MartinghoulAs to the curve, I guess whether you need it or not would depend on which cash-settlement method you use.Ha you villain, you edited. Care to elaborate on this? If it's cash you'll have to discount it.Thanks.
Last edited by DevonFangs on January 25th, 2012, 11:00 pm, edited 1 time in total.
 
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Martinghoul
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Swaption settlement trend

January 26th, 2012, 5:48 pm

QuoteOriginally posted by: DevonFangsQuoteOriginally posted by: MartinghoulAs to the curve, I guess whether you need it or not would depend on which cash-settlement method you use.Ha you villain, you edited. Care to elaborate on this? If it's cash you'll have to discount it.Thanks.Ha, indeed... I am not really 100% certain what you mean. Sure, you need to calculate the cash settlement amount, but why can't you do it using the simple IRR methodology, with the fixing (whatever it might be) as the discount rate. If I am not mistaken, that's how they do it in EUR/GBP etc. As long as everyone agrees on the fixing rate (which, I suppose, is where the fun really lurks), you don't need any other rates.
Last edited by Martinghoul on January 25th, 2012, 11:00 pm, edited 1 time in total.
 
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kypr
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Swaption settlement trend

January 27th, 2012, 1:26 am

There are 2 new swaption settlement methods described in supplement [28] to the 2006 ISDA definition published on Sept 30 2011: cleared physical settlement and collateralised cash price. The collateralised cash price method is different to the old cash settlement in that it uses a proper discounting curve (OIS) rather than the formula based on the swap rate.
 
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BerndSchmitz
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Re: Swaption settlement trend

February 28th, 2018, 9:01 am

Hi,

I know this is a very old thread but I didn't want to create a new one. From july onwards the market standard settlement type for EUR swaptions shifts from cash IRR to collateralised cash price. With the latter I haven't had any experience yet. I was just wondering how the curves for the collateralised cash price settlement calculation are determined. I guess the curves itself are not fixed but only the quotes used to bootstrap them. Is that correct? Given that everybody uses a slightly different curve building technique this would imply that the swaption buyer and seller are usually in disagreement on the settlement amount. Is this what one typically sees in the USD market (where collateralised cash Price is already market standard)?

Thanks,
Bernd
Last edited by BerndSchmitz on February 28th, 2018, 11:57 am, edited 1 time in total.
 
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Gamal
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Re: Swaption settlement trend

February 28th, 2018, 10:07 am

I don't know but appreciate a post about finance. It rarely happens these days.
 
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rmax
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Re: Swaption settlement trend

February 28th, 2018, 2:06 pm

I don't know but appreciate a post about finance. It rarely happens these days.
Ha ha
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