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Derivatives

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  • November 23, 2022
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Knock-Out Cap

A barrier cap whereby protection ceases to exist or deactivates only if the floating interest rate crosses the barrier on a rollover date (fixing/ resetting). The knock-out feature helps reduce the premium of this cap in comparison with that of a standard cap. The cap can either dies out for the entire remaining life of the cap or only for the resetting period. Interest rate caps can typically knock in on a variety of underlying rates/ prices, including LIBOR, commodity, FX and equity.

 


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