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Index Amortizing Swap IAS

What does Index Amortizing Swap IAS mean?

An interest rate swap in which the notional principal balance changes according to the movement of an underlying interest rate such as LIBOR. It is also known as the index amortizing rate (IAR) swap.

Futures Knowledge Explains Index Amortizing Swap IAS

The notional principal balance declines or amortizes with the decline in an interest rate, or some other index.  On the other hand, with the increase in interest rate, this balance also increases notionally. The movement in the notional principal is based on a schedule linked to the movements in an index. Index amortizing swaps are often associated with collateralized mortgage obligation (CMO). The swap is designed to minimize risk to the fixed rate receiver from prepayment on a collateralized mortgage obligation.

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