In this paper we provide an outline of interest rate swaptions and how to price swaptions with different payoff or settlement types. Firstly we review the different settlement styles commonplace in financial markets. Secondly we review the swaption pricing formulae corresponding to each...

In this paper we outline the European interest rate swaption pricing formula from first principles using the Martingale Representation Theorem and the annuity measure. This leads to an expression that allows us to apply the generalized Black-Scholes result. We show that a swaption pricing...

The Black-Scholes (1973) formula is well used for pricing vanilla European options. There are several different variations used by market practitioners dependent on the underlying asset being modelled. In this brief paper we present the generalized Black-Scholes representation, outline it's...