A swap in which an extension option is embedded. This means, one party (typically the fixed-rate payer) has the option to extend or prolong the life of the swap, at the end of its life, beyond the specified expiration date. For example, a three-year swap extendable for a additional two years would simply be equivalent to a three-year swap in conjunction with a swaption on a two-year swap that matures in three years.

The extendable swap, like the callable or puttable swap, is made up of an interest rate swap and an option that allows one party to extend a previously transacted swap under existing terms for a further period of time.

The extendable swap could be either a payer extendable swap or a receiver extendable swap.