Which of the Following Isnot True of a Swaption, I

question 11

Multiple Choice

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.

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Definitions:

Organic Molecules

Compounds primarily made of carbon atoms, often containing hydrogen, oxygen, and other elements, that are the basis of life.

Weak Base

A base that partially dissociates into its ions in an aqueous solution, resulting in a weakly alkaline solution, as opposed to a strong base which fully dissociates.

Strong Base

A substance that can readily accept hydrogen ions and is completely or nearly completely dissociated in aqueous solution, resulting in a high pH.

Sudan IV

A lysochrome (fat-soluble dye) used in histology to stain lipids, triglycerides, and lipoproteins in cells and tissues.