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

    A derivative contract through which two parties exchange financial ...
  2. Notional Principal Amount

    In an interest rate swap, the predetermined dollar amounts on ...
  3. Constant Maturity Swap - CMS

    A variation of the regular interest rate swap. In a constant ...
  4. Notional Value

    The total value of a leveraged position's assets. This term is ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
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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. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  3. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  4. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  5. Can hedge fund returns be replicated?

    You can replicate hedge fund returns to a degree but not perfectly. Most replication strategies underperform hedge funds ... Read Full Answer >>
  6. Can foreign investors invest in US hedge funds?

    U.S. hedge funds are open to accredited investors. When they distribute profits to investors, those proceeds are taxed at ... Read Full Answer >>

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