Which of the following isnot true of a swaption, i.e., an option on a swap?
A) A swaption is always less valuable than the underlying swap.
B) A swaption's value is always non-negative.
C) A payer swaption is worth less than a cap with caplets on the same dates as the swap underlying the swaption.
D) A swaption's value increases with interest rate volatility irrespective of which side of the underlying swap one may be on.

Question

Quizplus · Accepted Answer

This statement is false. A swaption may be more or less valuable than the underlying swap depending on market conditions and the specific terms of the swaption and swap.

Which of the Following Isnot True of a Swaption, I