Period interest rate cap
periodic interest rate cap. Definition. Specifies the maximum change in the interest rate of the loan and the minimum period at which the change occurs. The interest rate change includes an increase as well as a decrease in the rate. Viewed in this context, an interest rate cap is simply a series of call options on a floating interest rate index, usually 3 or 6 month Libor, which coincide with the rollover dates on the borrower’s floating liabilities. An interest-rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed-upon “strike” rate. An example of this would be an agreement to receive a payment for any period during which the LIBOR (London Interbank Offered Rate) exceeded 2.5%.