Interest rate cap: Difference between revisions
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An | 1. | ||
An option which pays out to the holder if the reference interest rate rises above the strike rate on the maturity date, or on a series of pre-agreed dates. | |||
The effect of hedging interest expense with a cap is to establish a maximum level for the hedged interest expense achieved. | |||
2. | |||
The hedged interest expense profile achieved by the use of an option in combination with an underlying interest expense exposure. | |||
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* [[Cap]] | * [[Cap]] | ||
* [[Interest rate]] | * [[Interest rate]] | ||
* [[Interest rate collar]] | |||
* [[Interest rate floor]] | |||
[[Category:Manage_risks]] | [[Category:Manage_risks]] | ||
Latest revision as of 08:55, 1 August 2015
1.
An option which pays out to the holder if the reference interest rate rises above the strike rate on the maturity date, or on a series of pre-agreed dates. The effect of hedging interest expense with a cap is to establish a maximum level for the hedged interest expense achieved.
2.
The hedged interest expense profile achieved by the use of an option in combination with an underlying interest expense exposure.
