A path-dependent interest rate option (specifically an interest rate floor) which provides investors holding floating rate assets with protection against decreases in total interest income over a particular period of time. The interest rate resets many times so as the final interest income is determined for the entire period. In that sense, and contrary to regular floors, the cumulative floor doesn’t provide a period-to-period protection. The holder of a cumulative floor is guaranteed to earn a minimum interest income from a floating-rate asset, below of which the option seller is obliged to reimburse any shortfall.
The cumulative floor is also known as a quantity floor, a Q-floor, or a payment floor.
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