What is an amortising option?

An amortising option is an option, often an OTC (over-the-counter) contract, where the quantity of underlying value (‘notional amount’) decreases as the term expires. This type of option may, for example, occur in the form of an amortising cap or an amortising swaption. These structures are used to hedge risks that decrease over time, such as with loans or other financial obligations where the principal is gradually repaid.