Swaption, Swap Agreement

[Baker, John]

        A swaption is an option to enter into a specified swap agreement.  The earliest use I've seen of this Wall Street terminology is from 1987:

        >>"I'm fed-up with tax exotica, 'swaptions' and the like," said one treasurer who produced his diary to show six appointments with "unknown" banks over the past few days.<<  Angela Mackay, "The Great Banker Glut," Australian Financial Review, Feb. 3, 1987.

        "Swap agreement" doesn't seem to be in the OED either, at least not in this sense.  A swap agreement is an agreement to exchange the cash flows from two assets; interest rate swaps are the most typical.  Swaps and swaptions are usually entered into using standard documentation from the International Swap Dealers Association, which was chartered in 1985.  Here's the earliest use I've seen, from 1982:

        >>AMFAC and Finance for Industry then exchanged their loans and signed a swap agreement under which AMFAC pays the fixed 15.25% interest on Finance for Industry's Eurobond borrowing.  AMFAC also pays the 0.625 percentage point margin on the floating rate loan, but Finance for Industry pays the remaining interest on that loan interest set at the floating London rate.<<  Dow Jones News Service, July 7, 1982.

John Baker


-----Original Message-----
From: Bapopik at AOL.COM [mailto:Bapopik at AOL.COM]
Sent: Tuesday, July 30, 2002 6:39 AM
To: ADS-L at LISTSERV.UGA.EDU
Subject: Birthday Restaurant; Reuben & Rachel; Swaptions; Butter's
Comments


SWAPTIONS--I found this word while catching up on my reading.  I checked, and
it hasn't been mentioned on ADS-L, it's not on the WordSpy, and it's not in
the OED.  It's standard terminology and it shouldn't fall unnoticed.