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. Total Return Swap

    A swap agreement in which one party makes payments based on a ...
  4. Swap

    Traditionally, the exchange of one security for another to change ...
  5. Bilateral Netting

    The process of consolidating swap agreements between two parties ...
  6. Commodity Swap

    A swap in which exchanged cash flows are dependent on the price ...
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. The Basics of Options Profitability
    Options & Futures

    The Basics of Options Profitability

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center