Product description
A swaption is primarily useful if you consider taking a floating interest rate loan and an unfavorable movement in market rates is expected before the loan is provided.
The basic principle of a swaption is the right or obligation to buy or sell the standard interest swap - IRS. The precise parameters of the host interest swap are set forth before the purchase/sale of swaption and are an integral part thereof.
There are two counterparties involved in a swaption: the buyer and the seller. The buyer of a swaption has a right, but is not obliged, to decide upon maturity whether he wants to enter into the defined interest swap (within which he either pays or receives a fixed payment against a floating one). In exchange for the right of decision, the swaption buyer pays an option premium to the seller.
If the buyer exercises his right, the seller is obliged to close the IRS as at the date of spot value, i.e. 2 business days after expiration.
Swaptions of the "European" type, where the buyer is entitled to make a decision about its use upon maturity only, are more frequent.
Terms of service
- Accounts in the relevant currencies.
- The minimum notional amount is CZK 50,000,000 or an equivalent in a foreign currency.
- Currency of the transaction is limited by the scope of the foreign exchange list of LBBW Bank CZ a.s.
- Master Agreement on Treasury Trades.
- Credit line designed for Treasury transactions.
