Equity Derivatives and Structured Products Glossary: Reverse index amortising swap


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Reverse index amortising swap

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Reverse index amortising swap

Reverse index amortising swap

An Interest rate Swap in which payments are linked to an index (eg, Libor or constant maturity Treasuries) and increase if that index declines. The Swap therefore exhibits positive Convexity. Receiving fixed in a reverse index Amortising Swap (reverse IAS) provides a Hedge for instruments (such as mortgage swaps) that amortise as Interest rates decline, although it is important to ensure that the indexes on which the amortisation or Accreting schedules are based are highly correlated. Unlike a conventional IAS, the fixed receiver of a reverse IAS is buying Volatility (sometimes referred to as ‘optionality’) which offsets the Short Option Position of a mortgage Portfolio.

See also mortgage Swap

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