Derivatives · glossary
An option on an interest rate. The buyer pays a premium once, and the seller then pays the excess of the fixing over the Cap Rate in any quarter where the rate is higher. Atlas bought a three-year cap on €10,000,000 at 4%. Confirmation 2 · Chapter 3
Explained in Chapter 3, The Cap, and the Family, of Derivatives.
An option is one-way. The buyer pays a fee once, called the premium, and after that it only receives. On an interest rate, a cap pays the buyer when the rate is above an agreed level, and a floor pays when it is below one. Atlas will buy a cap.Read Chapter 1, What a Derivative Is →
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