One of the mysteries of the English language finally explained.
An option giving the right but not the obligation to engage in a swap.
- ‘It was charging an option premium of 2.83 per cent to enable a borrower to enter a swaption agreement at 3.5 per cent, fixed in a year's time for five years.’
- ‘How the hell was anyone even supposed to understand all this with its ‘puts’ and ‘calls’, ‘options’ and ‘swaps and ‘swaptions’ in currency, bonds, stocks and interest rates?’
- ‘What we use are pretty simple things that are called interest-rate swaps, where we turn a short-term instrument into a longer-term instrument, or options or ‘swaptions.’’
- ‘But at least I could read up on swaps, options and swaptions while I was delayed.’
- ‘I've called thirty people, and still only have the vaguest idea about how to tell a swaption from a volatility smile, or even if I should.’
1980s: blend of swap and option.
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