In the Single Option page you can price supported instruments using the BGM model.
Depending on the instrument being priced, the BGM model can also be used to calculate the instrument’s:
Price as a %
This is for a Bermudan swaption.
Breakeven rate as a %
This result shows by default the fixed rate (in a mid format) that will automatically result in a zero NPV. In this situation the system does not display the NPV. However, if you then define your own fixed rate, via the Market Rate field, SD takes that edited rate as the fixed rate input for the BGM model and then calculates the resultant NPV.
NPV amount
This result is only displayed if you define your own fixed rate, via the Market Rate field.
To improve performance, the BGM model results are not automatically calculated when you click the main Calculate button. Instead to see the relevant result according to the BGM model you must click the Calculate BGM button.
Supported instruments
The BGM model can be used for the following instruments:
Bermudan swaption
Range accrual swap
Callable swap
Callable inverse floater
Callable capped floater swap
Inverse floater TARN
An Example of Using the BGM Model
For example, for a range accrual swap you can use the BGM model to calculate the breakeven rate (as seen in Figure 1).
Figure 1: Calculating the Breakeven Rate Using the BGM Model
If you then edit the fixed rate via the Market Rate field, when you click the Calculate BGM button again SD uses this value as the fixed rate in the BGM model as well and calculates the resultant NPV as seen in Figure 2.
Figure 2: You Can Edit the Fixed Rate and Then Calculate the Resultant NPV