Hi,I have the following problem:I price a swaption on a swap with a spread on the float leg and get a price.Now I shift the yield curve with the same spread and remove the spread on the float leg. So the underlying swap doesn't change, it has the same underlying forward and PV, doesn't matter where I add the spread. But the PV of the option changes significantly. Same thing in different pricing systems.My Problem is, that the swaption PV should only depend on the vola (does not change), underlying forward (stays also the same) and the strike. So why do I get two prices depending on where I add the spread?

Are you, perhaps, holding the Black vol constant? In that case the result is to be expected, since changing the yield curve will change the basis point vol proportionally. And it is the basis point vol that matters.

Hi,thanks for your answer, you're right. If I change the black vol so that the bps vol remains the same the prices are constant. I just wouldn't have thought that those pricing systems use the bps vol instead of the black vol

QuoteOriginally posted by: tosadnikI price a swaption on a swap with a spread on the float leg and get a price.My Problem is, that the swaption PV should only depend [...] the strike.The concept of strike is ill-defined for general swaption. It is well defined only for vanilla swaps (given convention, constant coupon, no spread). If you change any of them your original dynamic is not valid anymore. The best you can do is to try to have a "modified annuity" and a "modified strike equivalent".Most of the system I know will produce internal arbitrage if you play with conventions and spread. For example a swaption ACT/360 with a coupon 3.60% will not have the same price as a swaption ACT/365 with coupon 3.65% even if the cash flows are the same. A swaption coupon K and spread 0 will not be price like a swaption with coupon K+S and spread S (floating and fixed leg with same payment period and convention) even if the cash flows are the same. Usually the implementation is coming from a standard text books which smooth the roughness of real life.