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Derivatives

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  • October 27, 2021
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Callable Reverse Floater

A callable LIBOR exotic that helps investors leverage interest rates’ movements. This instrument, which is a zero-strike call on a reverse floater, is based on an underlying floating rate index to which the payoff (coupon) relates. If this index rises, the holder will pay less and receive more. But, in the opposite case, the holder has to pay more, while receiving less. In other words, the coupon is based on an reverse of a floating rate. The embedded call option will be exercised if the value of the reverse floater at expiration is positive (i.e., the option is in the money).


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