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. If a long call is owned on the record date of a stock, is the owner of the option ...

    Learn how holding a long call option does not entitle the holder to a dividend on the underlying stock unless the call is ...
  2. What are the advantages and disadvantages of using systematic sampling?

    Learn about the primary advantages and disadvantages of using a systematic sampling method when conducting research of a ...
  3. How effective is creating trade entries after spotting a Tri-Star pattern?

    Learn about the tri-star pattern and how to use corroborating reversal signals from other technical indicators to build effective ...
  4. How are swap agreements financed?

    Learn how swap agreements are now cleared by swap execution facilities and require the use of collateral margin to hold, ...
RELATED TERMS
  1. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  2. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
  3. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  4. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  5. Indicator

    Indicators are statistics used to measure current conditions ...
  6. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...

You May Also Like

Related Articles
  1. Chart Advisor

    Invest in Japan with this ETF

  2. Charts & Patterns

    How to Analyze Pharma Stock Fundamentals

  3. Investing Basics

    Market Simulators: How To Outperform ...

  4. Chart Advisor

    Bullish Traders Are Turning To Rare ...

  5. Chart Advisor

    Long and Short Trades to Consider This ...

Trading Center