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Periodic cap
       
 
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Periodic cap

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Periodic cap
A Cap in which the strike rate can vary from period to period. The strike rate in a given period depends upon the strike set in the previous period. Such caps are normally set at a fixed number of Basis points above the previous strike, or the index (for example, Libor) plus a spread. Periodic caps can be with or without "memory". A periodic Cap without memory simply looks at the strike in the immediately preceding period to determine a new strike, while one with memory may look at previous settings in determining the new strike. Periodic caps are common features in adjustable rate mortgages (ARMs) in the US where the borrower’s floating Interest payments cannot go up by more than a set number of Basis points in a given year.

See also Periodic floor
Posted by  Privatebanking.com
 
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