Main category
Economics (General Management)
Abstract
The average term is calculated for a swap that underlies a European style payer swaption, which is in the calibration portfolio for a Bermudan swaption with amortizing notional (i.e., the outstanding notional is reduced from time-to-time). Given the payer swaption maturity and the average swap term pair, we then look up, from a table indexed by payer swaption maturity and underlying swap term, the corresponding Black’s implied volatility.
Further reading
https://ia601500.us.archive.org/18/items/swap-average-term/SwapAverageTerm.pdf
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