How do you price interest rate caps?
The price of the cap is the sum of the price of each of the seven caplets. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
How many caplets in a cap?
caplet (plural caplets) (finance) A component of an interest rate cap, a derivative instrument that effectively prevents the interest payments on an otherwise variable-rate loan from exceeding an agreed level (the "cap").
What is a caplet derivative?
1 Interest rate swaptions are quoted in terms of the implied volatilities of the forward swap or LIBOR rates which are their underlying assets.