Call Swaption

Filed Under » ,
Dictionary Says

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 Says

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.

Articles Of Interest

  1.

    Careers In The Derivatives Market

    The growing interest in and complexity of these securities means opportunities for job seekers.

  2. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.

  3. The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.

  4. Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.

  5. Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.

  6. How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.

  7. An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.

  8. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.

  9. 5 Equity Derivatives And How They Work

    These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in.

  10. Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center