Subject 8. Forward swaps

Definition: a forward contract to enter into a swap.

A forward swap commits the parties to entering into a swap at a later date at a rate agreed on today. Unlike a swaption, which is the right to enter into a swap, it is a binding commitment to enter into a swap.

A forward swap requires no cash payment up front. Options give one party the choice of entering into a swap but require payment of a premium up front.