Swaptions

A swaption is an option on an interest rate swap. There are numerous models for swaptions, DerivativeOne uses Black's 1976 model.

In addition to the black scholes inputs the model requires a Future Swap Rate (ie the future swap rate from the option maturity date to the swap maturity date) and the Risk Free Rate (ie the zero coupon government bond rate for the period from the valuation date to the swap maturity date).

The Floating Rate Reset Frequency is frequency of the payment of the floating leg of the underlying interest rate swap.

DerivativeOne features a free valuation tool for Swaptions