swaption

The swaption was for a period of one year.

Shortly after being hired, he conceived and executed the first swaption in 1983.

An option on a swap is called a swaption.

The participants in the swaption market are predominantly large corporations, banks, financial institutions and hedge funds.

For example, a corporation wanting protection from rising interest rates might buy a payer swaption.

Legally, a swaption is an agreement between the two counterparties to exchange the required payments.

European swaption, in which the owner is allowed to enter the swap only on the expiration date.

American swaption, in which the owner is allowed to enter the swap on any day that falls within a range of two dates.

Return swaption: Option to enter into the return swap.

The buyer and seller of the swaption agree on:

The first known swaption was constructed and executed by William Lawton in 1983.

For example a typical Bermudian swaption might confer the opportunity to enter into an interest rate swap.

A swaption is an option granting its owner the right but not the obligation to enter into an underlying swap.

Everyone is happy; the swaption can be exercised and both people may still make a profit, depending on the timing and amounts involved.

There are two types of swaption contracts:

If furthermore the range accrual is callable, then the valuation model also needs to take into account the dynamic between the swaption and the underlying.

If the bond is called, the swaption is exercised, effectively canceling the swap leaving no more interest rate exposure for the issuer.

There are three main categories of Swaption, although exotic desks may be willing to create customised types, analogous to exotic options, in some cases.

The swaption market is over-the-counter (OTC), i.e., not traded on any exchange.

So it struck a side agreement with UBS Securities, involving a type of derivative called an interest rate swap option, or swaption.

Although options can be traded on a variety of swaps, the term "swaption" typically refers to options on interest rate swaps.

The volatility is typically "read-off" a two dimensional grid of at-the-money volatilities as observed from prices in the Interbank swaption market.

Another term which is commonly associated to Swap is Swaption which is basically an option on the forward Swap.

Therefore, the issuer also enters into Bermudan swaption when the bond is brought to market with exercise dates equal to callable dates for the bond.

A bank that holds a mortgage portfolio might buy a receiver swaption to protect against lower interest rates that might lead to early prepayment of the mortgages.