Valuation of Contingent Claims :
Swaptions
Review equivalences and synthetics. long interest rate cap + short interest rate floor = receive floating, pay fixed short interest rate cap + long interest rate floor = receive fixed, pay floating long receiver swaption + short payer swaption = receive fixed, pay floating short receiver swaption + long payer swaption = receive floating, pay fixed
Option Greeks and Implied Volatility: Delta :
Delta: the change in a given instrument for a given small change in the value of the underlying, holding all else constant.
Gamma :
Gamma: The change in a given instrument’s delta for a given small change in the stock’s value, holding everything else constant.
Theta :
Theta: the change in a portfolio for a given small change in calendar time, holding everything else constant.
Vega :
Vega: the change in a given portfolio for a given small change in volatility, holding everything else constant.
Rho :
Rho: the change in a given portfolio for a given small change in the risk free interest rate, holding everything else constant