Hello everyone,Assume I enter a cancelable swap with a Bermudan swaption which gives me a right to buy a swap such that I can cancel the original swap which I pay fixed and receive floating. I do not pay the premium of the swaption at the outset. Instead I pay the premium when I exercise the swaption.Is the following statement true?The value of Fixed leg + the value of swaption = the value of floating leg.Any ideas will be very appreciated.

If you do not exercise at all, do you pay the premium at the swap's maturity?

QuoteOriginally posted by: StochastixIf you do not exercise at all, do you pay the premium at the swap's maturity?If I do not exercise at all, I do not need to pay the premium at the swap's maturity.Any ideas?

That statement/equation sounds like you are paying for the swaption in installments with a spread added to your floating leg. Otherwise you would face the pay-later option problem Stochastix mentioned...

QuoteOriginally posted by: JQuoteOriginally posted by: StochastixIf you do not exercise at all, do you pay the premium at the swap's maturity?If I do not exercise at all, I do not need to pay the premium at the swap's maturity.Any ideas?So in other words, I will pay for the option if and when I can make a profit from you in doing so, otherwise I won't pay you for the option at all. How are you going to make money?

QuoteOriginally posted by: exotiqQuoteOriginally posted by: JQuoteOriginally posted by: StochastixIf you do not exercise at all, do you pay the premium at the swap's maturity?I do not exercise at all, I do not need to pay the premium at the swap's maturity.Any ideas?So in other words, I will pay for the option if and when I can make a profit from you in doing so, otherwise I won't pay you for the option at all. How are you going to make money?Let me repeat the question as the following:Assume I enter a cancelable swap with a Bermudan swaption which gives me a right to buy a swap such that I can cancel the original swap which I pay fixed and receive floating. I do not pay the premium of the swaption at the outset. Instead I pay the premium when I exercise the swaption.Is the following statement true?The value of Fixed leg + the value of swaption = the value of floating leg.Any ideas will be very appreciated.

QuoteOriginally posted by: JQuoteOriginally posted by: exotiqQuoteOriginally posted by: JQuoteOriginally posted by: StochastixIf you do not exercise at all, do you pay the premium at the swap's maturity?I do not exercise at all, I do not need to pay the premium at the swap's maturity.Any ideas?So in other words, I will pay for the option if and when I can make a profit from you in doing so, otherwise I won't pay you for the option at all. How are you going to make money?Let me repeat the question as the following:Assume I enter a cancelable swap with a Bermudan swaption which gives me a right to buy a swap such that I can cancel the original swap which I pay fixed and receive floating. I do not pay the premium of the swaption at the outset. Instead I pay the premium when I exercise the swaption.Is the following statement true?The value of Fixed leg + the value of swaption = the value of floating leg.Any ideas will be very appreciated.Please specify:1.) If you do not exercise, do you pay the premium at the maturity of the swap?2.) Is the premium amount fixed, so that you pay the same amount of money if you exercise next year versus 1 year before maturity, and only the timing is different?

[1.) If you do not exercise, do you pay the premium at the maturity of the swap?2.) Is the premium amount fixed, so that you pay the same amount of money if you exercise next year versus 1 year before maturity, and only the timing is different?Q1** I do not need to pay the premium at the maturity of the swap if I do not exercise.Q2** The premium amout decreases when the term to maturity of the swap decreases. Therefore if I choose to exercise at the date close to the maturity date of the swap, the premium I have to pay is less that when I choose to exercise earlier.

Sorry to interfere in you private conversation...But, cancellable is just an option which gives you the right to cancel the underlying of the deal.Which means that is nothing but an option/bermudan to enter in an underlying with oposite signs which cancel it...Hope it helps,

QuoteOriginally posted by: ValSorry to interfere in you private conversation...But, cancellable is just an option which gives you the right to cancel the underlying of the deal.Which means that is nothing but an option/bermudan to enter in an underlying with oposite signs which cancel it...Hope it helps,Yes, I know cancellable is a option. But I want to know the relationship between the value of floating leg for the underlying swap, the luae of fixed leg and the value of bermudan swaption.Is "The value of Fixed leg + the value of swaption = the value of floating leg" true?

QuoteOriginally posted by: JQuoteOriginally posted by: ValSorry to interfere in you private conversation...But, cancellable is just an option which gives you the right to cancel the underlying of the deal.Which means that is nothing but an option/bermudan to enter in an underlying with oposite signs which cancel it...Hope it helps,Yes, I know cancellable is a option. But I want to know the relationship between the value of floating leg for the underlying swap, the luae of fixed leg and the value of bermudan swaption.Is "The value of Fixed leg + the value of swaption = the value of floating leg" true?I don't get itIt looks like (I woudn't say relathioship ) how expressing option value function of +/- underlying.

Please correct me if I am wrong.This structure looks like a swap + a Bermudan style swaption. Can we price the Bermudan part as a series of European swaption by MC simulation?

It is a bermuda call with exercise fees -- fees are scheduled. The scheduled fees essentially raise the strike.

QuoteOriginally posted by: JackInTheBoxIt is a bermuda call with exercise fees -- fees are scheduled. The scheduled fees essentially raise the strike.Do you think "PV of fixed leg + option value =PV of floating leg" holds? If not, please tell me the reasons.