An interest rate cap (cap) that comes with no additional features. In other words, the structure of a vanilla cap is basic as it consists of a number of properly constructed caplets whereby the buyer (holder) receives payments at the end of each period in which the interest rate exceeds the agreed strike price.
An example of a vanilla cap is an agreement to receive a payment for each month, over the lifespan of the cap, in which a floating rate (a reference rate like LIBOR) exceeds 2.6%.
Adding features to a vanilla cap would convert it into an exotic cap (non-standard cap or irregular cap). Examples of such additional features include the ability of the holder to choose which caplet to exercise (in which case the cap is referred to as a chooser cap).
