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Floor
A derivative consisting of a series of interest rate put options with the same exercise rate, called floorlets, each of which in turn puts a lower limit on the interest rate for one of the reference periods over the life of the derivative.
A floor protects the holder against a decline in interest rates for a specified period while maintaining the potential benefits of a future rise in interest rates. Thus, the holder knows that a floating rate investment will provide a minimum return corresponding to the floor strike rate.
Synonyms and variations
- Floor strike rate
- Interest rate floor