Call Swaption

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What is 'Call Swaption'

A type of option between two parties that can be exercised on a swap where the buyer of the swap has the right, but not obligation, to receive an agreed upon fixed interest rate. The buyer pays a premium for the right to swap at this fixed rate. Short for a call swap option, a call swaption can be used as a hedging tool to avoid risk if a bond issuer believes interest rates might decrease.

Explaining 'Call Swaption'

When a buyer feels it will be beneficial, he may enter into a call swaption, which will allow him to swap interest rates. The buyer of the option receives a fixed rate, compared to a put swaption where the buyer pays a fixed rate.

A simple method for pricing interest rate swaptions
www.tandfonline.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Credit default swaptions
jfi.pm-research.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Throwing away a billion dollars: The cost of suboptimal exercise strategies in the swaptions market
www.sciencedirect.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

On the suboptimality of single-factor exercise strategies for Bermudan swaptions
www.sciencedirect.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Pricing European commodity swaptions
www.tandfonline.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

An evaluation of multi-factor CIR models using LIBOR, swap rates, and cap and swaption prices
www.sciencedirect.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Riding the swaption curve
www.sciencedirect.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Pricing swaptions within an affine framework
jod.pm-research.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Optimal bank interest margin with synergy banking under capital regulation and deposit insurance: a swaption approach
www.worldscientific.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

Swaptions and options
papers.ssrn.com [PDF]
… the issuer holds, the issuer can arbitrage volatility by buying cheap (low-volatility) embedded calls and then … If the under- lying swap is a long fixed-pay swap combined with a call swaption (receiver swaption … A cap is a series of options, whereas a swaption is one discrete option …

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Q&A About Call Swaption

What is meant by receiving a fixed rate when purchasing a Call Swaption ?

You get paid at that fixed rate when purchasing one .

How do you know if it will be beneficial to enter into a call swaption?

If you feel it will be beneficial then you may enter into one.

What does short for mean?

Short for means "for".

Can anyone purchase or sell Call Swaptions ?

Yes , anyone can buy or sell these .

Who has the right to receive an agreed upon fixed interest rate in a call swaption?

The buyer of the option receives this fixed interest rate.

Why would someone want to purchase a put option on swaps instead of entering into them directly with each other?

To avoid risk if they believe rates might decrease by selling them instead of entering into them directly with each other.

Is there another type of swaption besides put and call options?

Yes, there are other types as well including put and call options.

What is a call swaption?

A call swaption is an option between two parties that can be exercised on a swap where the buyer of the swap has the right, but not obligation, to receive an agreed upon fixed interest rate. The buyer pays a premium for this right.

What does put mean in regard to options on swaps?

Put means "to sell" or "to give up."

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