Government bond swaptions and how they might work

Payoffs based on bond yields instead of swap rates could offer new hedging tool, argue Crédit Agricole execs


Callable bonds are typically based on bank or agency debt. But options based on European government bonds are attracting investor interest, too. They can offer greater yield because the sovereign curve is steeper than the Euribor equivalent.

Taking this concept a step further, it’s possible to create cash-settled swaptions using French government bond (OAT) yields. The payoffs would be calculated using the French constant maturity treasury rate, known as TEC, instead of constant maturity swap

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Digging deeper into deep hedging

Dynamic techniques and gen-AI simulated data can push the limits of deep hedging even further, as derivatives guru John Hull and colleagues explain

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