Amortizing swap - Financial definition
Financial acronyms
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Concise definition of the term amortizing swap
A swap in which the notional principal reduces over time according to an agreed schedule or formula.
Comprehensive definition of the term amortizing swap
Counterparties might want to enter into an amortizing swap if the notional principal on the debt the swap is to hedge is expected to reduce (i.e. if the debt itself amortizes).
It might, for example, be used to convert a fixed-income security with either sinking fund or early redemption provisions into a floating-rate instrument.
Amortizing swaps can be analyzed as a portfolio of individual swaps, the total swap price reflecting a weighted average of the individual swap rates. Alternatively, it can be seen as one swap of a particular duration and priced as a swap with this maturity.