How Swaption Volatility Grids Are Divided by Expiry and Swap Tenor

Summary

The document explains common desk terminology for locating swaptions on a volatility grid. The grid is organized by option expiry and underlying swap tenor: short expiries are often treated as gamma exposures, while longer expiries are associated with vega. Combining these dimensions yields upper-left and upper-right regions for short-expiry options on shorter or longer tails, and lower-left and lower-right regions for longer-expiry options.

It also defines front end, belly, and long end as broad swap-tenor groupings, with belly commonly referring to intermediate tenors. Examples illustrate how instruments can be placed in these regions. The boundaries are conventions rather than universal definitions: terminology can vary by desk, and the document notes that intermediate left and right categories may also be used. Its examples provide a practical vocabulary, not a standardized grid classification.

Key ideas

• A swaption grid maps option expiry against the tenor of the underlying swap.
• Short expiries are commonly grouped as gamma structures, while longer expiries are grouped as vega structures.
• Upper and lower grid regions distinguish shorter from longer expiries, and left and right regions distinguish shorter from longer swap tenors.
• Belly generally refers to intermediate swap tenors, though exact boundaries vary by practitioner.

Tags

# How is the swaption vol grid clustered/seperated?


# How is the swaption vol grid clustered/seperated?












I understand that broadly you have gamma/vega and furthermore upper right/left and lower right/left. Can you break it up even more? I've heard "Belly Vega" thrown around.

The vega sectors seems to be very broad. Im sure the specific expiry/tail bounds differ between shops. For example, BofA research classifies tenors between 2y1y and 30y30y as "LLC" (lower left). That seems a bit broad.

## Answer by JUW (score 1)

https://quant.stackexchange.com/a/82045

"Belly" usually means intermediate tail in trading community. "RHS" means long tail. Still, they are jargons used by practitioners and different people can have different interpretations.

## Answer by Transcending (score 1)

https://quant.stackexchange.com/a/83615

Terminology on bonds/tenors of swaps:

Front end = 1Y (swaps), 2Y, 3Y

Belly = 5Y, 7Y, 10Y

Long end = 15Y (swaps), 20Y, 30Y, 30Y+ (swaps)

To visualize the swaption grid: From left to right you have tenors: 1Y, 2Y, 3Y, 5Y, 7Y, 10Y, 20Y, 30Y From top to bottom you have expiries: 1M, 3M, 6M, 1Y, 2Y, 3Y, 5Y, 10Y, 20Y

Gamma structures are expiries with <=1Y, vega structures are expiries with 2Y+.

Therefore, terminology for swaption grid is upper left (UL) include gamma on short tails, e.g. 3Mx1Y, 6Mx2Y. UR is gamma on longer tails, e.g. 6Mx10Y, 1Mx30Y. Lower left (LL) is vega on short tails and LR is vega on long tails. There is also intermediate left and right side (ILS, IRS), etc.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.