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Marc Henrard – 02/08/22

Quantcast – a Risk.net Cutting Edge podcast

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What Is the Difference Between a Cash Settlement and a LIBOR Swap?

The pricing of options with physical delivery and the pricing of the cash settled ones now is different. Can you explain how that turns out to be the case? Yes, and it's somehow embedded in my first answer in the sense that physical delivery, you receive a swap. So you receive a set of payments which are linked to the LIBOR fallback. That's why there is the difference. One side, you have LIBOR payment, and on the other side, a swap rate payment. I see. Another observation you make is the annuities mismatch between LIBOR swaps and cash set disruptions. And there's the convexity adjustment that comes from it. can you explain what the

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