Zero Coupon Bermudan Swaption
A Zero Coupon Bermudan Swaption is a Bermudan Swaption to enter into a Zero Coupon Swap. It can be characterized as a swap where the cashflows are accrued and exchanged at the maturity of the swap. The Floating Leg cash flows are accrued at the realised floating rates and the Fixed Leg cash flows are accrued at the specified vector of fixed rates.
A Zero Coupon Bermudan Swaption can be roughly characterized as a special case of a Bermudan Variable Notional Variable Coupon/Spread Swaption.
Let the floating leg spreads and fixed leg rates be represented respectively
Given the above specification of the stochastic variables and value functions the traditional tree approach can be used to solve for the derivative value.
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