Business and Personal Finance Dictionary

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• INDEX AMORTIZING SWAP
  
  A swap whose Notional Amount (q.v.) amortizes (declines) each period by an amount that depends on the level of one or more interest rates. This gives the IAS a superficial resemblance to a mortgage loan or mortgage-backed security, which has optional prepayment. This superficial similarity has been the basis for a sales pitch to institutions with a large prepayment risk to hedge. Alas, the basis risk is large enough to discourage intelligent, experienced – or even merely intelligent – professionals from hedging this way. The IAS – like the legendary House of the Rising Sun, in New Orleans – has been the ruin of many a poor boy.
  
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