A super flexible cap in which the notional amount is automatically rolled forward if not used by the holder. In this sense, this cap is a modified version of an ordinary cap. In essence, the notional amount in an ordinary cap remains unchanged at each reset date. The rolling cap has the effect or rolling any unexercised caplet notional amount onto the next period. Consequently, the rolling cap allows a holder to utilize caplets expiring worthless by having them taken forward to a future point in time. If not used by the holder, the notional amount will continue to build up, and with it increases the upward protection.
For more, see: “rolling cap: an example“.
