Swaption


With the swaption you buy the right (= Option) to enter into a swap as a fixed-rate receiver (= Receiver swaption) or as a fixed-rate payer (= Payer swaption) at a later date. On the trade date the counterparties agree upon physical delivery or cash settlement of the swaption.

A Payer swaption is suitable, for example, to secure the current level of interest rates in connection with possible financing projects in the future, while simultaneously having the opportunity to profit from a lower market rate on the exercise date.

  • Right to receive a floating money market rate (e.g. 3-M Euribor), and in return to pay
  • the agreed fixed swap rate (= strike rate) to the swap counterparty on the exercise date.

Today:

Swaption

Exercise Date: Entry into the swap*

Swaption

Underlying transaction: Floating rate loan

Swaption

   Financing costs: Fixed swap rate + credit margin (synthetic fixed rate loan)

* (Option of either cash settlement or expiration of the option; depending on the current market rate and the agreement reached)


In the event of early termination, the swaption can be sold in the market at the current market rate. When you enter a swap agreement the transaction is subject to market fluctuations during the term. In the event of early termination of the contract, the swap can result in a negative or positive market value.

The swap agreement can be customized to meet your needs and those of the underlying transaction:

  • Maturity
  • Strike Rate
  • Structure of the underlying Swap

Pay-Off Profile Swaption

Swaption