An interest rate swap (specifically, an off-market swap) in which payments are made upfront on a discounted basis. That means, the discount swap uses the coupon of a discount bond or bill (discount instrument) as a basis for the fixed rate or floating rate payment. A balloon payment by the fixed-rate payer at maturity may be also considered by the two parties, taking into account the discount amount at inception.
It is also known as a non-par swap.
