  Is an option to early terminate a swap at its market value worth zero? At
first sight it is, but in presence of counterparty risk it depends on the
criteria used to determine such market value. In case of a single
uncollateralised swap transaction under ISDA between two defaultable
counterparties, the additional unilateral option to early terminate the swap at
predefined dates requires a Bermudan credit valuation adjustment. We give a
general pricing formula assuming a default-free close-out amount, and apply it
in a simplified setting with deterministic intensity and one single date of
optional early termination, showing that the impact on the fair value of the
transaction at inception might be non negligible.
