Advertising

Power cap

• Is a derivative that pays off from the long's perspective in an exponential manner. If the current market price of the benchmark is greater than the strike, then the long receives payment. The payment is determined by raising to the predetermined power the difference between the current price and the strike price. For the case of a 2 power cap, or raised to the second power, the difference between the current market and the strike is squared. For a cubed power cap, the payoff would be the difference between the current price less the strike raised to the third power. The powers can be whatever is agreed upon. It should be noted that the risk profiles show abrupt and accelerating movements.

 
 Embedded terms in definition
 Benchmark
Cap
Derivative
Long
Market
Risk
Strike price
 
 Related Terms
 Buying power
Cap
Earning power
Equity cap
Interest rate cap
Market cap or market capitalization
Power grid
Power of attorney
Purchasing power parity
Purchasing power risk
Relative purchasing power parity

<< Potential total return Power grid >>

Multi-Tasking In Your 30s, 40s or 50s: Managing for today and saving for tomorrow, including a child's college expenses and your retirement More...

If you find it in your heart to care for somebody else, you will have succeeded.- Maya Angelou

Advertising



Copyright 2009-2018 GVC. All rights reserved.