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Caplet
An interest rate call option that puts an upper limit on the interest rate in a multiple period cap agreement for a specified reference period.
(1) By paying a premium to the writer, the caplet holder has the right to receive, and the writer is required to pay, at the end of the reference period, an interest differential between a floating rate index such as LIBOR, and the cap strike rate, if this rate is lower.
(2) A cap consists of a series of caplets, each of which puts an upper limit on the interest rate for one of the reference periods over the term of the cap.