Select language:

 CAPs and Floors 


  • CAP
  • A CAP is a series of interest rate options with an upper limit (strike) which the seller of the CAP guarantees to the buyer.

    The important parameters for a CAP are the maturity term, base amount, strike price, reference interest rate, capital amount and premium. Once you have entered these condition characteristics, the system can directly display the cash flow. From this, you can see that the capital amount is only used to calculate the settlement payments and does not trigger a cash flow. The system also automatically determines and displays the rollover data.

    At the scheduled interest rate adjustment, you can either enter the reference interest rate manually or let the system import the data to determine any interest receivable that is due. If the option is in-the-money, the system calculates this amount automatically and displays it either as an individual amount or together with the preceding payment flows in the cash flow. The system repeats this procedure for each interest rate adjustment until the transaction expires. If the CAP is out-of-the money, there are no payments on either side.

    • FLOOR

    Floors are processed similarly. Purchasers of floors want to protect themselves against falling interest rates and pay sellers a premium in return for their interest rate guarantee. The purchaser claims interest receivables as soon as the reference interest rate passes through the agreed lower limit (floor).


    1. Enter the following basic data in the initial screen:
        • Company code
        • Product type
        • Transaction type
        • Business partner
      1. In the Activity area, you decide whether the transaction will be created as a contract or order.
      2. If you are working with external number assignment, you must enter a key for the transaction in the corresponding field so that it can be uniquely identified within a company code. Otherwise, the number is automatically assigned by the system and confirmed when you save the transaction.
      3. Press Enter to reach the basic data screen.
      4. A dialog box may appear here if you have assigned several flow types to a flow category

      Possible flow types for the premium of a CAP: accrual/deferral-relevant or non-accrual/deferral relevant.

      1. The following fields must/can be filled with transaction data:
        • Strike upper limit (lower limit)
        • Reference interest rate
        • Frequency of interest rate adjustment
        • Interest calculation method
        • Term
        • Nominal amount and currency
        • Due date
        • Premium

      For more information, see

      1. You can set up your system in Customizing to show the name of the dealer entering the transaction. You can also enter additional information, such as the business partner or a business partner reference.
      2. For more information about the pushbuttons , see
      3. Condition Details.
      4. Select the button, to create principal increases or decreases. Repayment structures are created by principal decreases.
      5. After you have changed the nominal amounts, the following button changes: Nominal amount change.
      6. You can also branch to the entry screens of general transaction management (
      7. Administration, Cash flow, Other flows, Payment details, Memos and Status).
      8. In the upper applications toolbar, you access further functions by choosing
      9. Extras and Environment
      10. To save the basic data, choose Cap/Floor ® Save.

      For more general explanations of terms, see Basic Data.