exercise dates from swaptions or callable swaps

drona · February 17th, 2012, 1:32 am

Hi,In swaptions or callable swaps, we usually are given probability of exercise on each of the call dates. I am looking for a way to get one date that is the exercise date. Is this a valid question.thanks

wickedwit · February 17th, 2012, 1:38 am

wickedwit · February 17th, 2012, 1:40 am

typically most plain vanilla swaptions have an expiry, say of 1m from today, which is an option on a forward starting swap that would typically begin t + 2 for the desired tenor.

drona · February 17th, 2012, 1:53 am

thanks, I should have expressed clearly.imagine a callable swap of 5 years which can be exercised on each of the coupon payment dates. How best or is it even possible to find out the exact date on which it will be exercised.

bearish · February 17th, 2012, 2:30 am

It is not a well-posed question ex ante. You can pick out the date that, if you had to pick a single (European style) exercise date up front, would maximize the value of your swaption, but there is valuable extra optionality arising from your right (in a Bermudan option) to change your mind later.