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Cap strike rate
A derivative consisting of a series of interest rate call options with the same exercise rate, called caplets, each of which in turn puts an upper limit on the interest rate for one of the reference periods over the life of the derivative.
A cap protects the holder against a rise in interest rates for a specified period while maintaining the potential benefits of a future decline in interest rates. Thus, the holder knows that the cost of a floating rate debt will not exceed the cap strike rate.
Translations
Synonyms and variations
- Cap
- Interest rate cap