What is a Bermuda swaption?

By Richard Wilson AAA
A:

The



Bermuda swaption refers to a modified American style of option. A swaption is an option on an interest rate swap in which the buyer has the ability to enter into an interest rate swap agreement at a prearranged future date. However, the Bermuda swaption has prearranged limitations and rules on when to exercise.



The Bermuda swaption differs from other swaptions because it grants the holder the right to enter into an interest rate swap at each exercise date in a schedule, provided that the holder has not exercised the right at any previous time. In other words, the Bermuda swaption can be exercised on several different days rather than on one day only.



For more on this topic, read An Introduction to Swaps and Exotic Options: A Getaway From Ordinary Trading.



This question was answered by Richard C. Wilson.



RELATED FAQS

  1. What is the disparity index formula and how is it calculated?

    Discover how to calculate the disparity index, a technical indicator used by analysts to measure price movements in a candlestick ...
  2. What are the main signals traders use when following the Average Directional Index ...

    Learn how the average directional index, or ADX, measures momentum and strength in market trends and how specific signals ...
  3. How is accumulation area calculated?

    Explore the use of accumulation areas in the analysis of traded securities. Learn about on-balance volume and its role in ...
  4. How is the Accumulative Swing Index calculated?

    Learn how the accumulative swing index is calculated using swing index. Explore absolute value and how it is used in the ...
RELATED TERMS
  1. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  2. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  3. Short Put

    A type of strategy regarding a put option, which is a contract ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
Related Articles
  1. Trading Strategies

    Steps To Becoming A Quant Trader

  2. First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  3. Options & Futures

    Applying Binary Options To Equity Markets

  4. Investors can use derivative securities to effectively buy insurance on their individual holdings or on their portfolio as a whole.
    Options & Futures

    Can You Buy Stock Insurace? 3 Strategies ...

  5. With more ETFs to trade, the risks associated with these investments have grown. To mitigate these risks, ETF options are a hedging strategy for traders.
    Mutual Funds & ETFs

    ETF Options Hedge Risk of ETF Trades

Trading Center