· Bermudan swaptions may be thought of as a basket of European swaptions but with a single exercise
· A Bermudan Swaption will “track” the richest European swaption in its basket (the “CTD”), with an additional premium for the right to choose other
exercise possibilities
· We characterize Bermudan Swaptions by analyzing the “bases” of the European swaptions in the basket
· We discuss the replication of Bermudan Swaptions using European swaptions in its basket
· We develop a measure of relative value between Bermudan and European swaptions
· A new Bermudan Swaptions Report based on the approach outlined here may be found in the daily Interest Rate Derivatives Analytics package