In a payer swaption, the purchaser has the right but not the obligation to enter into a swap contract where they become the fixed-rate payer and the floating-rate receiver. ... Beyond these terms, the buyer and seller must also agree whether the swaption style will be Bermudan, European or American.

What is a payer interest rate swap?

In the case of an interest rate swap, the payer is the party that pays a fixed interest rate throughout the life of the swap. In return, they receive a payment based upon a floating interest rate. Being the payer in an interest rate swap can be useful if you think interest rates are going to go up.

How does a swap work?

A financial swap is a derivative contract where one party exchanges or "swaps" the cash flows or value of one asset for another. For example, a company paying a variable rate of interest may swap its interest payments with another company that will then pay the first company a fixed rate.