Hi all,
In retail banking, fixed rate term deposits comes with an implicit option to the client to early withdraw his deposit with no cost.
Client option may be modeled as a bermudean call swaption indexed on rates + spread.
I would like to setup a partial hedge of this swaption. By partial, I mean a portfolio of IRS only (no credit instruments), whose aim is to minimize the hedged position P&L variance.
I was considering using the delta of a bermudean swaption whose strike is the term deposit fixed rate minus the bank's initial spread.
Does somebody has a better option or some references to articles tackling this subject ?
Thanks in advance.