Knowledge

European Swaption

An option on a forward start interest rate swap that gives the purchaser the right to either pay or receive a fixed rate. A buyer of a swaption who has the right to pay fixed and receive floating is said to have purchased a payer swaption. Alternatively, the right to exercise into a swap through which the buyer receives fixed and pays floating is known as receiver swaption. The options holder is only permitted to exercise on the expiry date.