Interest Rate Options: Caps, Floors, and Swaptions
Free CFA Level II lesson in Derivatives. 21 min read, ~3,099 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...
Read the full lesson, free →
Worked examples, audio narration, and practice. No signup to read.
What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- forward commitments
- contingent claims
Browse all free CFA Level II lessons or jump into free CFA Level II practice questions.