Swaption

Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate swap agreement by some specified date in the ' future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the counterparty to the swap if the buyer exercises. The New York Times Financial Glossary

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swaption swap‧tion [ˈswɒpʆn ǁ ˈswɑːp-] noun [countable]

FINANCE a loan with a variable interest rate (= one that changes) that can be exchanged for a loan with a fixed interest rate if rates fall below a certain level:

• The swaption mortgage will allow borrowers to switch out of fixed rate if the variable rate falls.

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   An option on a swap, giving the holder the right, but not the obligation, to enter into an interest rate swap as either the payer or receiver of the fixed side of the swap.

   ► See also Swap.

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swaption UK US /ˈswɒpʃ^ən/ noun [C] FINANCE

► the right to make a swap on or by a particular date in the future, for example the right to exchange a fixed interest rate for a lower, variable one: »

If the swaption is not exercised by maturity, it expires worthless.