DEFINITION of 'Airbag Swap'
An interest rate swap whose notional value adjusts according to rising interest rates by indexing the floating portion to a constant maturity swap (CMS).
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BREAKING DOWN 'Airbag Swap'
These swaps were created to hedge investments in areas where interest rate fluctuations have significant effects. Due to an increasing notional value, an asymmetrical payout schedule occurs whereby the swap's net payment with higher interest rates is greater than that occurring with lower interest rates.
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RELATED FAQS

How can I use an "airbag swap"?
An airbag swap is an interest rate swap designed to provide a cushion against rising interest rates. The airbag swap originally ... Read Answer >> 
What is an absolute rate?
An absolute rate is easy to understand once you know the basics of an interest rate swap. An absolute rate is the fixed rate ... Read Answer >> 
What are interest rate swaps on the OTC market?
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Can individual investors profit from interest rate swaps?
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What would motivate an entity to enter into a swap agreement?
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Do interest rate swaps trade on the open market?
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