Capped Agreement

Autor: Marjian

The interest rate cap can be analysed as a series of European call options, called “caplets”, which exist for each period during which the cap agreement is concluded. As a rule, to exercise a ceiling, its buyer is not required to notify the seller, because the ceiling is exercised automatically when the interest rate exceeds the exercise rate (interest rate). [1] Note that this auto exercise feature is different from most other types of options. Each caplet is paid in cash at the end of the period to which it relates. [1] Tesco Mobile was one of the first mobile networks in the UK to offer a Capped Contract option available to customers since October 2009.


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