Interest-rate cap
= 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.