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Interest Rate Floorlet


An interest rate derivative (specifically, an interest rate option) which allows the holder to receive an interest rate payment during a specific period of time if interest rates fall below a pre-defined level. In this sense, a floorlet guarantees a minimum level of floating interest rate for one particular date. In other words, an interest rate floorlet is a single put option on interest rates. In return for the right to exercise such an option, the holder pays a premium.

An interest rate floor is a sum of continuous series of interest rate floorlets.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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