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Related to Swap option: swaption
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
An option in which the buyer of the option has the right to enter into to an interest rate swap. The terms of the swaption specify whether the buyer will be the payer of the floating rate or the payer of the fixed rate. It is called a swaption because it is an option on a swap. A swaption is useful if an interest rate swap may be useful for the buyer's investment strategy, but there is still some uncertainty as to whether that will be the case. See also: Call swaption, Put swaption, Plain vanilla swap.
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