Swaption (Swap Option)

AAA

DEFINITION of 'Swaption (Swap Option)'

The option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.

INVESTOPEDIA EXPLAINS 'Swaption (Swap Option)'

The agreement will specify whether the buyer of the swaption will be a fixed-rate receiver (like a call option on a bond) or a fixed-rate payer (like a put option on a bond).

RELATED TERMS
  1. Call Swaption

    A type of option between two parties that can be exercised on ...
  2. Reverse Swap

    An exchange of cash flow streams that undoes the effects of an ...
  3. Commodity Swap

    A swap in which exchanged cash flows are dependent on the price ...
  4. Currency Swap

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

    A derivative financial instrument that gives the holder the right, ...
  6. Interest Rate Swap

    An agreement between two parties (known as counterparties) where ...
Related Articles
  1. Hedging With ETFs: A Cost-Effective ...
    Mutual Funds & ETFs

    Hedging With ETFs: A Cost-Effective ...

  2. Options Basics Tutorial
    Options & Futures

    Options Basics Tutorial

  3. How Companies Use Derivatives To Hedge ...
    Active Trading

    How Companies Use Derivatives To Hedge ...

  4. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center