What is ‘Targeted Amortization Class – TAC’
A type of credit derivative that is similar to a planned amortization class (PAC) in that it protects investors from prepayment; however, it is structured differently than a PAC. TACs protect investors from a rise in the prepayment rate or a fall in interest rates. They do not protect from a fall in the prepayment rate like PACs.
Explaining ‘Targeted Amortization Class – TAC’
The TAC is essentially a bond under a collateralized mortgage obligation (CMO). Under a TAC, the principal is paid on a predetermined schedule. Any prepayment that occurs is amortized in order to maintain the schedule. TACs are inferior to PACs because they only provide one-sided prepayment protection.
Targeted Amortization Class (tac) FAQ
What is planned amortization class?
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- E. Banks, The Palgrave Macmillan Dictionary of Finance, Investment and Banking© Erik Banks 2010 – link.springer.com [PDF]
- Toward parallel financial computation: valuation of mortgage-backed securities – ieeexplore.ieee.org [PDF]
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