An American swaption is a swaption that can be exercised on any date that falls within a specified range—that is, the period between the lockout end date (the date before which the option cannot be exercised) and the expiry date of the underlying swap.
As soon as the swaption is exercised, the underlying swap is activated.
By default, the underlying swap is set to a swap with a fixed end date. That is the swap’s expiry date is predefined, and so the actual length of the swap depends on when you enter into it. The actual length of the underlying swap is calculated from the date you exercise the swaption until the fixed end date.
For information on a European swaption (where the owner can only choose to enter the swap on a single day) see Swaption; for information on a Bermudan swaption (where the owner can choose to enter the swap on a number of specified dates) see Bermudan Swaption.
Pricing an American Swaption in SDX Interest Rates
When pricing an American Swaption in SDX Interest Rates, in addition to the fields for a regular swaption (see Pricing a Swaption) you must also define the following:
In addition, in an American swaption, if you choose to enter into a cash settled instrument (using the Cash Settle button), then the swap curve annuity method is always used—this method calculates the market price as if the instrument was physically settled, i.e., it calculates the market price of the underlying swap.