Trigger swap - Financial definition
Financial acronyms
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Concise definition of the term trigger swap
A trigger swap operates in the same way as a vanilla swap with the exception that the swap is canceled or the swap rate changes if the underlying rate passes a specified trigger.
Comprehensive definition of the term trigger swap
An investor trigger is designed to enhance the return from a floating rate bond. The investor enters into a swap paying the coupon and receiving a higher floating rate in exchange for the risk that if the trigger is exceeded a fixed rate will be paid instead. Usually the fixed rate is equal to the trigger rate so the investor immediately receives an unfavorable return once the trigger is breached.