does anyone has a good strategy for equivalencies in the exam?
like a long callable bond is equivalent to having a long option-free bond plus short a receiver swaption
or payer swap = long paywer swaption + short receiver swaption
I usually go by thinking about the fix and float side, but some times I ll get it wrong, any strategy for solving this kinda problems?\
THANKSSSS!!!
Not really other than trying to replicate the characteristics of what you are trying to make a synthetic for.
Like a long callable bond as you said = vanilla bond gets you the first part (straight bond) and now you need to replicate the call option. The receiver swaption gives someone else the right, which is exactly what a call option on a bond does (gives issuer right to call).
yea, thats how I usaully try to solve. but feels like guessing every time.