Variable Strike Bermudan Swaptions (HW-Tree)

Variable Strike Bermudan Swaptions (HW-Tree)

HWTree_BermReceiverSwaption(argument list…)

HWTree_BermPayerSwaption(argument list…)

These functions return the value per $1 notional (e.g. 0.03 means 3% of notional) of Bermudan Put (Payer) and Call (Receiver) swaptions, using the Hull-White trinomial tree model. When exercised, the holder of the option enters into a swap with a predetermined start and end date. Accruals begin on the swap start date (if exercised before the swap start date) or on the exercise date (if exercised past the swap start date). The functions use the following arguments:

Argument	Description	Restrictions
Valuation_Date	valuation date (e.g. today)	valid Excel date number
Exercise_Dates	array of exercise dates	strictly ascending order; the last date must be <= the swap maturity date
Exercise_Rates	array of strike rates corresponding to Exercise_Dates array (constant swap rates that are entered into if swaption is exercised)	> 0
Notice_Days	minimum notice, in days, required to exercise swaption	>= 0
Swap_Start_Date	beginning of underlying swap	valid Excel date number
TIM	length of underlying swap, in months	> 0
Fixed_freq	number of fixed-side payments per annum	1, 2, 4, or 12
Yr_Basis	year basis used in determining payments	360 or 365
Holidays	array of holiday dates	valid Excel date numbers strictly ascending order
Date_Convention	business date convention	0 = no adjustment 1 = Following business day 2 = Modified following 3 = Previous
Tree_Steps	number of steps in trinomial tree BETWEEN FIRST AND LAST EXERCISE DATES	> 0, typically 50 to 100, although this should be lowered if the exercise period is a small fraction of the life of the option (otherwise too many tree steps in total)
Short_Rate_Vol	annual standard deviation of the short rate of interest, in decimal form	> 0
Reversion_Rate	mean reversion rate of the short rate of interest, in decimal form	>= 0
Zero_Dates	array of zero coupon curve dates	strictly ascending order The first date of this array must be Valuation_Date
Zero_Rates	array of continuously compounded riskless rates in decimal form (e.g. six percent entered as 0.06) corresponding to Zero_Dates	> 0
OAS	parallel shift of the zero curve in decimal form
Bucket_Start	beginning of bucket for zero curve shifts	set to 0 if curve shift is not desired
Bucket_End	end of bucket for zero curve shift	>= Bucket_Start
Bucket_Shift	parallel shift of the zero curve between Bucket_Start and Bucket_End in decimal form	set to 0 if curve shock is not desired