The act of terminating a swap agreement by mutual consent of the parties at an early date before maturity. The party seeking termination has to pay the other party a lump-sum amount equal to the net present value of the swap at the time of termination. A cancellation usually involves the sale of the swap to the original counterparty. The compensation that a counterparty might have to pay to the other depends on how interest rates and credit spreads have changed since the conclusion of the swap.
Cancellation of a swap is sometimes referred to as a swap buy-back.
