An interest rate swaption is an option for two parties to swap interest rates.

When you exercise a swaption you can settle in cash or enter into another swap agreement.

Entering Interest Rate Swaptions

Use the Interest Rate Swaptions window to enter your interest rate swaption deals.

To enter a swaption

1. In the Company and Counterparty fields in the Interest Rate Swaptions window, select a company and counterparty for the swaption.

2. In the Portfolio field, select a portfolio for the swaption.

3. If you want to apply a limit to the swaption, in the Limit field select a limit.

4. If you are acting as a broker for a client, in the Client field select the client you are acting as a broker for.

5. In the [ ] Descriptive Flexfield, complete the descriptive flexfield information as required. For more information on descriptive flexfields, see: Defining Descriptive Flexfields.

6. In the Deal Subtype and Product Type fields of the Main Details region, select the deal subtype and product type for the swaption. When you select the deal subtype, you determine which part of the swap is fixed rate.

7. In the Swap Curr Fixed Leg field, select the currency for the fixed leg of the swaption.

8. In the Face Amount field, enter the face amount of the swaption.

9. In the Expiration Date field, enter a expiration date for the swaption. If this is an American style swaption, enter a start date and an expiration date for the swaption. The Option Style field is automatically populated, with European or American, based on the dates you entered.

10. In the Physical Start Date field, enter a start date.

11. In the Maturity Date field, enter a maturity date.

12. In the Fixed Rate field, enter the fixed rate for the swaption.

13. In the Day Count Basis field, enter the day count basis for the deal. The day count basis determines the number of days per year used to calculate interest on the deal. The possible day count bases are: actual/actual, actual/360, actual/365, 30/360, 30E/360, 30E+/360. For more information on how each day count basis is calculated, see: Treasury Terms.

14. In the Interest Freq field, enter the length of each interest accrual period in months.

15. In the Action field, indicate whether you pay or receive the interest in the option by selecting either Pay or Rec.

16. Complete the fields in the Premium Details and Additional Details tab regions as needed.

17. Save your work.

Exercising Interest Rate Swaptions

Use the Exercise Details window to exercise your interest rate swaptions.

To exercise an interest rate swaption

1. In the Interest Rate Swaptions window, query the swaption that you want to exercise.

2. Choose the Exercise button. The Exercise Details window appears.

3. In the Settlement Rate field, enter the rate at which you exercised the swaption.

4. Enter the exercise date for the swap.

5. Enter the amount for the swap.

6. If you want to roll over your option into another swap, check the Create Swap check box. The Interest Rate Swaptions window appears and contains the default data for the swap you are exercising. Enter the new settlement date for the swaption and save your work. The reference number for the swaption appears in the Swap Ref field in the Exercise Details window.

7. Save your work. You return to the Interest Rate Swaptions window.

8. If you want to view the exercise details for the interest rate swaption, in the Interest Rate Swaptions window query the record, and select the Exercise region of the window.

Viewing Interest Rate Swaptions

Use the View Interest Rate Swaptions window to view the details for an interest rate swaption deal.

To view an interest rate swaption

• In the View Interest Rate Swaptions window, query the swaption that you want to view.