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Derivatives

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  • July 8, 2020
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Call Swaption

A call option on a swap in which the buyer has the right, but is not obliged, to enter into a swap in which he/she pays the fixed rate (a fixed rate payer) and receives the floating rate. This position increase in value as interest rates rise, and vice versa.

The option derivatives its value from the value of its underlying swap (which by nature changes over time depending mainly on the differential between the two legs).

This option is also referred to as a payer swap.


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