Swaption - Financial definition
Concise definition of the term swaption
An option on a swap. A payer’s swaption gives the holder the right to pay fixed in an interest rate swap if he so wishes. A receiver’s swaption gives the holder the right to receive fixed in an interest rate swap.
Comprehensive definition of the term swaption
A payer’s swaption could be bought to hedge the floating rate debt cost of a major stage in a project financing, for example - if rates have risen at the end of the life of the option it will be exercised to allow the project to pay fixed in a swap. If rates have fallen then the option is allowed to die and the swap is not entered into.