Hello Forum!I have got different ICAP quotes for the "same" ATM Swaption Straddle, e.g.exp x swap term7Y x 1y - 22.7% 7Y x 1y - 22.4% The first quote is VCAP1. The second is VCAP1A.What is the meaning (difference) of these quotes? (i.e. how to calculate swaption pv)Which conventions are used for VCAP1 and VCAP1A quotes?

Has to do with the transition to fwd premium that occurred recently in non-USD mkts. If memory serves, the "A" page is based on fwd premia.

Could you explain, please, the differences in terms of price (pv) calculation?

QuoteOriginally posted by: MartinghoulHas to do with the transition to fwd premium that occurred recently in non-USD mkts. If memory serves, the "A" page is based on fwd premia.yes, so far i think you will see only in euro mkt, since this sept, 1A and (similarly 2A etc) are based on fwd premium, which is now the standard. the 1 (2 etc ..) are derived the "A" counterparts by icap based on their eonia discounting curve i think

The transition has happened in GBP now as well...daemon, basically, due to some collateral malarkey (that I won't go into), the interbank mkt has now undergone a transition, where swaption premia are paid on expiry date, rather than spot date. So, effectively, you now have ICAP offering two premia screens: one that actually trades in the interbank mkt, which is based on the assumption that payment is made on the fwd date; and the other one, where ICAP publishes the fwd premium discounted to spot using their OIS curve (EONIA/SONIA).

Hello Martinghoul!What do you mean with spot date in "swaption premia are paid on expiry date, rather than spot date"?Does it mean the following?in the past:the premium for cash settled swaptions was paid at the start date of underlying swap (expiry + something (e.g. 2 business days)).now:the premium for cash settled swaptions is paid at expiry date.

No, I mean that in the past premium for swaptions was paid spot. Specifically, let's say you bought 1y10y EUR (GBP) straddles on day T. In the past, you would have paid the premium to the counterparty on day T+2 (for GBP, T+0 or, in some cases, T+1). In the brave new world, you would, effectively, pay the premium on day T+1YR, i.e. at expiry. Make sense?

I am sorry but it explains only the existence of different Premia quotations.In fact ICAP provides two pages with Premia. First one for spot Premia and the second page for fwd Premia (A-Variant).As expected the fractions of corresponded quotation are equal for the same expiries. (EONIA discount).But what is the reason for differences in volas? Volas are used for description of standard variations of stochastic quantities (in this case ln of par swap rate.)

Not true, the vol depends on your discount curve. If you have a spot premium, what is the vol? To get it you need to take out the discount factor first.I find this utterly confusing too and wish things remained the old way. But the market cannot function when the price of the swaption depends on who you trade with.

QuoteOriginally posted by: daemonBut what is the reason for differences in volas? Volas are used for description of standard variations of stochastic quantities (in this case ln of par swap rate.)Ha-ha, mate, if you think ICAP actually think of vols this way, I fear you're going to be sorely disappointed.I could be mistaken (and you should have a wee chat with folks from ICAP yourself), but the idea is that the two vol screens are vols implied in the same manner from the two different premia. This makes very little sense, as you say. Therefore, I have stopped looking at ICAP vols and only look at what actually trades in the mkt, i.e. premia. I then imply the vols myself, which makes everything consistent.

I think they take the fwd premium and work out spot premium using EONIA/SONIA.Then the back out the vol from spot premium using a Euribor discounted curves to get the vol on one screen.On the other they back out the vol from fwd premium using EONIA discounted curves.

Hi, Sorry for jumping into this Topic instead of a related one (Fwd premium quoted for vanilla option - good/bad?)But this is (instead) very much spot on my questions. Thanks to Martinghoul ! I now understands this a little bit better ? but still need your brain (or someone else) to fully get to the bottom with this:Example and questions:Assume you have a EUR Swaption ATMF and look at the ICAP pages VCAP1, VCAP1A, VCAP2, VCAP2A:Given the page ? one can conclude that:10m 2M2Y ATM Payer swaptions quoted at 34.7 Vol with a premium price 0.88 paid at Spot (T+2d) EUR 88 00010m 2M2Y ATM Payer swaptions quoted at 34.5 Vol with a premium price 0.90 paid at Expiry (T+2y) EUR 90 000The question is what the difference in price really reflect?ICAP refer to ??based on current spot price compounded up using our EONIA curve? and??This will automatically result in our published vols and bp vols being lower and these values will appear on VCAP1A and VCAP2A respectively?Question No1:I fully understand that paying something later should have an interest effect but how does it work in reality?Is the EUR 2 000 diff in the example above ?purely? the interest rate difference (based on EONIA rates) because you pay in 2y instead of now? The 24m EONIA is around 1.185 percent at the moment and if I use EONIA to compound EUR 88 000 in 2Y it will give an amount of EUR 90 150 (pretty close?) Question No2:How is the Fwd premium Volatility calculated? (34.7 vs 34.5) Is it just a mathematical way of expressing the price difference (0.90 vs 0.88) by an iterative process using Black to get a zero Present Value given a market price (0.90 and 0.88) + the option specific parameters where the premium pay day in both calculations (VCAP1 and VCAP1A) is the same? One ?observation? is that the Vega for the 10m payer swaptions is around EUR 2480 ? and this means that Vega 2480 * (34.7-34.5)= EUR 490 => representing a price diff of 0.0049 instead of 0.02=0.90-0.88If the difference in price is around EUR 2000 (90000-88000) and the price effect when looking at the Vega should instead be EUR 2000/Vega 2480=0.80This should instead imply a Vol difference in 0.80 (34.7 vs 33.9) ? which is way off compared to 34.7 vs 34.5 so this cannot be correct I assume.So the question is how ICAP come to the Vol of 34.5 for the fwd premium given the Vol of 34.7 for the premium paid spot?Question No3:When the trade is booked ? is it just a normal swaption trade with the only difference that the pay day of the premium is on expiry day instead of spot?Question No4:Is the premium payment really done on the expiry day in EUR? Or is it Expiry + 2 spot days= 2 business days after the expiry day?In GBP it is the same day I assume because GBP trade with zero spot days.Thanks, Scalper

1. It is as you say (if I understood you correctly).2. Fwd premium volatility is calculated in the same exact manner as spot. I'd recommend you check out the Collector's Option Pricing Formulas book which has the expression for Black swaption pricing (it's section 4.1.2 in the older edition, I think). It will become apparent where the discounting term sits and how it affects pricing etc.3. Trade is booked normally with the premium payment date agreed to be the forward one.4. I am not 100% sure, but I think payment date is, as you suggest, spot out of the expiry date, rather than expiry date itself.