A swaption is an over-the-counter contract that gives the buyer the right to enter into a fixed-for-floating interest rate swap at a predetermined swap rate. There are two types: receiver swaptions give the buyer the right to receive fixed rates, while payer swaptions give the buyer the right to pay fixed rates. The Black-Scholes model can be applied to price swaptions, using inputs like the current swap rate, time to expiration, strike rate, and volatility. However, in reality swaption volatility varies with the strike rate, known as swaption skew.