Question: expain in detail, please Example: Payer Swaption Suppose we enter into a 3-month European payer oil swaption: the strike price = $21 and the underlying

expain in detail, please expain in detail, please Example: Payer Swaption Suppose we enter into a

Example: Payer Swaption Suppose we enter into a 3-month European payer oil swaption: the strike price = $21 and the underlying swap commences in 1 year and has 2 settlements After 3 months, the fixed price on the underlying swap is $21.50: Exercise the option, obligating us to pay $21/barrel for 2 years and allowing us to receive $21.5/barrel for 2 years. In year 1 and year 2, we will receive $21.50 and pay $21, for a certain net cash flow each year of $0.50

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