Interest Rate Swaption

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An Interest Rate Swaption, or simply a swaption, is a financial derivative that grants the holder the right, but not the obligation, to enter into an interest rate swap at a predetermined fixed rate (the strike rate) on a specified future date. It combines features of options and interest rate swaps, allowing the buyer to hedge against or speculate on changes in interest rates. There are two main types: a payer swaption, which gives the right to pay a fixed rate and receive a floating rate, and a receiver swaption, which allows the holder to receive a fixed rate and pay a floating rate. Swaptions are commonly used by financial institutions and corporations for managing interest rate risk or to position for anticipated rate movements.

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