Bermuda Swaption

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Bermuda Swaption

An option in which the buyer of the option has the right to enter into to an interest rate swap on certain dates throughout the option's life. The terms of the swaption specify whether the buyer will be the payer of the floating rate or the payer of the fixed rate. It is called a Bermudan swaption because, like a Bermudan option, the swaption may only be exercised on certain, specified dates over its life. See also: Call Swaption, Put Swaption, Plan Vanilla Swap.
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It also prices complex swaps with embedded options, such as range accruals, Bermudan swaptions and target accrual redemption notes, by constructing detailed numerical models such as interest rate trees and LIBOR-based simulation.