Swaption (Swap Option)

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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).

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