Callable Coupon Swap

A coupon swap which gives the fixed rate payer the right, without the obligation, to terminate the swap at a specified time before maturity (prior to the end of the swap’s tenor). Opting for exercising callability right will be well justifiable in a declining interest rate environment. The fixed rate payer will be better off if the coupon swap is terminated, as payment of an above-market fixed rate is counterintuitive.