How to Price a Swap with a floating start date

Diskiss · April 22nd, 2015, 6:11 am

A client is asking to fix his swap rate today but have the flexibility to start his swap when he first draws down on his loan, a few weeks, months later. I know many price this without a model, basically calculating the potential deviation of the forward level from the current spot level using a simulation, the pricing being be more expensive based on the steepness of the curve and the volatility, but I was wondering if there is a closed form model to price this. Would anyone be so kind as to explain to me what's the most efficient way to price this? :)Thanks!

pimpel · April 22nd, 2015, 6:41 am

Basically your position is similar to a bermudan swaption. As I understand, the client is not intending to arbitrage the level, as he wants to have a possibility to enter into swap when he draws the money on a loan, but from your perspective it is still the position in forward swap, where you do not know when it will start.

daveangel · April 22nd, 2015, 7:21 am

apologies ignore