Interest Rate Options: Caps, Floors, and Swaptions
Free CFA Level II lesson in Derivatives. 21 min read, ~3,180 words.
A cap is a portfolio of caplets (calls on the forward rate); a floor is a portfolio of floorlets (puts on the forward rate). Each reset settles independently, paid in arrears. Caplet payoff = Notional x max(Reference rate - Cap rate, 0) x (days / 360). The day-count multiplier is...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- forward commitments
- contingent claims
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