*In valuing European swaptions using the [[Black model]], the [[underlying|underlier]] is treated as a [[forward contract]] on a swap. Here, as mentioned, the [[forward price]] is the forward swap rate. The [[Volatility (finance)|]] is typically "read-off" a two dimensional grid of at-the-money volatilities as observed from prices in the Interbank swaption market. On this grid, one axis is the time to expiration and the other is the length of the underlying swap. [[Guesstimate|Adjustments]] may then be made for moneyness; see [[...|Implied volatility surface]] under Volatility smile.
== First known swaption ==
The first known swaption was constructed and executed by [[William Lawton]] in 1983. Lawton was the Head Trader for Fixed Income Derivatives at in [[Los Angeles]] at that time. Lawton worked with First Interstate's Treasury Options Desk to adapt the concept of an interest rate swap and an options contract. The swaption was for a period of one year. First Interstate, for a premium, sold a Los Angeles based savings and loan the right to enter into a five-year interest rate swap to pay fixed versus three-month Libor on a notional amount of $5 million [source?]