A 6 month swaption on oil has a strike price of $15. With 3 month remaining, the fixed price on the swap is $16.00. If an investor exercises the swaption and enters into a new swap, what is the net cash flow at settlement?
A) $15.00 paid
B) $16.00 received
C) $1.00 paid
D) $1.00 received

Question

Quizplus · Accepted Answer

The investor exercises the swaption to enter a swap at $15, but the market rate is $16. The net cash flow is the difference, $1.00 received.

A 6 Month Swaption on Oil Has a Strike Price