Call Swaption

AAA

DEFINITION of 'Call Swaption'

A type of option between two parties that can be exercised on a swap where the buyer of the swap has the right, but not obligation to, receive an agreed upon fixed interest rate. The buyer pays a premium for the right to swap at this fixed rate. Short for a call swap option, a call swaption can be used as a hedging tool to avoid risk if a bond issuer believes interest rates might decrease.

Also known as a payer swaption.

INVESTOPEDIA EXPLAINS 'Call Swaption'

When a buyer feels it will be beneficial, he may enter into a call swaption, which will allow him to swap interest rates. Regardless of whether the buyer of the option is the rate receiver or the payer, the interest rate will be fixed, based upon terms of this agreement.

This type of swap occurs in forex trading as a currency swap where the interest paid is also agreed upon.

RELATED TERMS
  1. Currency Swap

    A swap that involves the exchange of principal and interest in ...
  2. Bermuda Swaption

    A derivative financial instrument that gives the holder the right, ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Swaption (Swap Option)

    The option to enter into an interest rate swap. In exchange for ...
  5. Swap

    Traditionally, the exchange of one security for another to change ...
  6. Derivative

    A security whose price is dependent upon or derived from one ...
Related Articles
  1. Credit Default Swaps: What Happens In ...
    Insurance

    Credit Default Swaps: What Happens In ...

  2. An Introduction To Structured Products
    Options & Futures

    An Introduction To Structured Products

  3. Careers In The Derivatives Market
    Options & Futures

    Careers In The Derivatives Market

  4. Derivatives 101
    Fundamental Analysis

    Derivatives 101

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center