An interest rate floor (i.e., a contract on a minimum interest rate) whereby the seller pays the buyer, at periodic payment dates, the positive difference between the pre-determined strike price (the floor) and the average market interest rate. On each settlement date, the strike rate on the floor is compared to the average index rate over a specific period. For example, a 6% floor on prime interest rate is set against the daily average of prime rates over the last quarter.
The Asian floor (which is an Asian option on a floor rate) is also known as an average floor or an average rate floor.
Comments