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Derivatives

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  • July 24, 2020
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CMS Cap

A non-standard interest rate cap in which the rate used is a swap rate with a constant maturity. For example, a CMS cap could put a ceiling on a 5-year swap rate. CMS caps are useful instruments for investors willing to hedge positions in long-term interest rates on expectation the rates will go up faster than the yield curve predicts. Like a normal interest rate cap (vanilla cap), which consists of a series of caplets, a CMS cap can also be viewed as a set of CMS caplets.


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