What does Callable Swap mean?
A type of a cancellable swap that gives the party, paying the fixed rate of interest, the right to end the swap before the period of maturity; though he is not under the obligation to end the swap. Callable swap protects against fluctuating interest rates.
Futures Knowledge Explains Callable Swap
Like any other swap, two parties here also exchange their cash flows. One party pays the cash flows at a fixed interest rate, while the other party pays on a floating interest rate basis. In callable swap one special right is given to the party paying fixed interest rate, he has the right to end the swap before it matures. In the other type of cancellable swap, known as putable swap, the fixed rate receiver has the right to terminate the swap.