A Bermudan option is an option where the buyer has the right to exercise at a set (always discretely spaced) number of times. This is intermediate between a European option—which allows exercise at a single time, namely expiry—and an American option, which allows exercise at any time . For example a typical Bermudan swaption might confer the opportunity to enter into an … [Read more...]
Bermuda Swaption
A swaption with predefined limitations on exercise.The buyer of a swaption has the right to enter into an interest rate swap agreement by some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the counterparty to the swap if the buyer … [Read more...]
Bilateral Netting: Explained
What is Bilateral Netting? Bilateral netting is a legally enforceable arrangement between a bank and a counterparty that creates a single legal obligation covering all included individual contracts.The process of consolidating swap agreements between two parties into a single agreement. This means that a bank’s obligation, in the event of the default or insolvency of one of … [Read more...]
Market Arbitrage: An Overview
It is an investment strategy that attempts to profit from inefficiencies in price by making transactions that offset each other. Market arbitrage is the process of taking advantage of differences in prices for the same commodity in different markets. It allows people who spot an opening to make a quick profit. However, the costs of buying and selling commodities can limit the … [Read more...]
How Interest Rates Affect the Market
What is a Mortgage? A mortgage is the transfer of an interest in property (or the equivalent in law - a charge) to a lender as a security for a debt - usually a loan of money. A mortgage represents a loan or lien on a property/house that has to be paid over a specified period of time. Think of it as your personal guarantee that you'll repay the money you've borrowed to buy … [Read more...]