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. How does a forward contract differ from a call option?

    Find out more about forward contracts, call options, the mechanics of these financial instruments and the difference between ...
  2. How are double exponential moving averages applied in technical analysis?

    Learn more about double exponential moving averages (DEMAS), and find out how traders commonly use DEMAs in technical analysis ...
  3. How do you know where on the oscillator you should make a purchase or sale?

    Learn more about oscillator indicators, technical momentum measures that are used by traders to predict potential market ...
  4. What are the alert zones in a Fibonacci retracement?

    Discover more about the Fibonacci number sequence, and specifically about the key Fibonacci retracement alert levels most ...
RELATED TERMS
  1. Strike Width

    The difference between the strike price of an option and the ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  3. Reference Equity

    The underlying equity that an investor is seeking price movement ...
  4. Boundary Conditions

    The maximum and minimum values used to indicate where the price ...
  5. Delta-Gamma Hedging

    An options hedging strategy that combines a delta hedge and a ...
  6. Gamma Hedging

    An options hedging strategy designed to reduce or eliminate the ...

You May Also Like

Related Articles
  1. Trading Strategies

    Microsoft's Game of Catch-Up With The ...

  2. Charts & Patterns

    Avoid The Perfection Trap In Trading

  3. Chart Advisor

    Four Great Stocks for Day Traders

  4. Chart Advisor

    Looking To The Mega Caps For Strength

  5. Options & Futures

    How does a forward contract differ from ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!