A swap agreement that kicks in or activates only upon the occurrence of a specified event, whether firm-specific (like mergers and acquisitions, expansions, increasing capital, etc) or systematic (such as interest rate change, exchange rate change, and so on). To that end, a premium should be paid by the party keen to adjust for a contingent event and any potential risk it may cause, to the party willing to sell protection. A special case of contingent swap is a swaption. The value and exercising of swaptions are usually contingent on a move in interest rates.
December 16, 2024
