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Yes, but I can't think of a book off hand for you to learn from. I think they are covered in the CFA books, although I'm sure it's not very well or in depth. I would try to just search for something on amazon or barnes and noble or something. You can PM me if you have a specific question and i will try to help.
Try Interest Rate Swaps and Swaptions by Fabozzi. Also you might want to start out by looking into commodities swaptions, those are probably the easiest to understand - there are many physical hedging diagrams that go into detail on swaptions... i.e. NYMEX to monthly index pricing to daily pricing.. etc... Understanding why/how the swaptions exist who uses them can give you context into understanding their price relationships.
http://www.amazon.com/Interest-Rate-Swaps-Their-Derivatives/dp/04704439…
This book was given to a first year analyst on a swaptions desk. I would also read Natenberg to learn about options in general.
Fabozzi's FI Handbook has a chapter on them I believe
I'm a swaption trader. The book recommended above is amongst the best you can read (although it is highly USD market biased). Beyond that, read the paper by Hagan et al on the SABR model. Should give you everything you need to know to come into a trading role in swaptions with an excellent awareness of things.
Thanks for posting this,
IRS Swaps and Swaptions (Originally Posted: 03/09/2015)
Hello,
I am learning more about the IRS and Swaptions space after being heavily involved in equity and equ derivs. Can someone explain to me the basics of how the big sell-side desks operate and execute trades on behalf of clients and for their own pads? Do they charge commission/how do the bank desks make money, which banks are the biggest players in the US, how much is typically traded by a big bank desk, etc? Any help would be greatly appreciated.
If we are talking about vanilla swaps (fix vs float in the same currency), the market is incredibly liquid, very unsophisticated, moving very fast towards electronical platforms (instead of voice) and extremely competitive. Basically, hundreds of quotes a second with counterparties who don't give a rat's arse who you are. The margins are very low but the volume is huge. Banks quote the fixed rate that they are ready to bid/ask to receive/pay the benchmark rate (LIBOR or whatever). Your gain is the bid ask spread. You can become the bank with the most volume overnight if you are willing to be too agressive, but then, you are not making money. Generally speaking, the banks will try to manage their inventory so that the different trades cancel each other. This way, the bank is not taking any interest rate risk.
With the new Volcker rule, it is said that some banks use the huge volume of the market to camouflage directional positions in swaps. Basically, the bank would make $$$ if the trader could predict the direction of the rates, even if he is clearly not allowed to.
An ever increasing share of swap execution takes place on SEFs (coming in Europe under the OTF name), i.e. electronically, like the previous poster said. This is due to Dodd-Frank (and upcoming MIFiD 2 in Europe).
All the usual suspects are big in this mkt in the US, although there are definitely additional new entrants, such as Citadel.
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