An interest rate cap (and an option strategy- a form of participating option) which gives its holder partial protection from upward move of a floating rate (such as LIBOR). If the floating rate exceeds the specified maximum rate, the cap holder receives any amounts in excess. The participating cap requires no upfront fee. However, the holder must accept to give up some of the rate gains (downside movement) in the opposite case (when the rate goes down).
December 21, 2024
