Airbag Swap


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).


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.

  1. Swap

    Traditionally, the exchange of one security for another to change ...
  2. Notional Value

    The total value of a leveraged position's assets. This term is ...
  3. Constant Maturity Swap - CMS

    A variation of the regular interest rate swap. In a constant ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Notional Principal Amount

    In an interest rate swap, the predetermined dollar amounts on ...
  6. Credit Default Swap - CDS

    A particular type of swap designed to transfer the credit exposure ...
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  1. 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 Full Answer >>
  2. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  3. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  4. What do hedge fund analysts do?

    A hedge fund analyst primarily provides support to a portfolio manager on how to best structure the hedge fund's investment ... Read Full Answer >>
  5. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  6. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>

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