Consider a hypothetical example in which a buyer purchases a payer swaption with a strike rate of 1.50%, an expiry of 2 years, and a swap term of 3 years. The buyer exercises the right if the market fixed rate on the swap is above 1.50% in 2 years. The buyer then holds a swap for the next 3 years, paying a fixed rate of 1.50% and receiving a floating rate. Because the buyer pays a fixed rate lower than the market rate, the difference is the gain from exercising. If the market fixed rate is 1.50% or below, the buyer does not exercise and loses the premium paid.
Swaption
- Japanese
- スワップション
- Last reviewed
- September 25, 2026
This is a draft, shown for review before publication.
A swaption is an option that gives the buyer the right to enter into an interest rate swap at a future date at a fixed rate agreed in advance (the strike rate). The right to become the fixed-rate payer is a payer swaption, and the right to become the fixed-rate receiver is a receiver swaption.
Related terms
Explained in detail
Pages that use this term
- Exercise Styles: European, American and Bermudan
- Caps and Floors
- Overview of Exotic Rate Products
- Bermudan Swaptions
- Callable Swaps
- CMS Spread Options
- Power Reverse Dual Currency (PRDC)
- Callable Bonds and Early Redemption Features
- Implied Volatility
- Volatility Smiles and Surfaces
- The Black and Bachelier Models
- The Hull-White Model
- The LIBOR Market Model (LMM)
- The SABR Model
- Model Calibration
- Adjoint Algorithmic Differentiation (AAD)
- Lifecycle Event Processing
- Lifecycle Event Data
- Identifiers: LEI, UTI, and UPI
- Electronic Trading Platform Mandate