 Interest-rate cap

A cap limits the floating rate on a notional principal by paying the excess over a strike for successive accrual periods. It is a sum of caplets. For accrual fraction $\delta$ and reset at $T$ with payment at $U$, the unit-notional payoff is $\delta (L(T;T,U)-K{)}^{+}$ at $U$, where $L(T;T,U)=[P(T,U{)}^{-1}-1]/\delta$ and $P$ is a zero-coupon bond price.