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Periodic Floor


An interest rate floor which provides, at specific adjustment dates, protection against decreasing interest rates for loans and mortgages. It limits the minimum amount of adjustable rate loans on a periodic basis. The floorlet rate resets at a pre-agreed spread to the reference rate for each period thought the floor’s life. For that reason, the holder of a periodic floor doesn’t receive the absolute protection otherwise provided by normal floors.

For example, consider an adjustable rate loan with a reference rate of 7%, an initial floor of 1% and a periodic floor of 1%. At the first adjustment date, this loan can adjust downward to 5% at most. At the second adjustment date, it can adjust 1% at least.



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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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