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
Strike price
 Related Terms
 Buying power
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 >>

Ways to Cope Financially During and After a Big Change: Here are suggestions for staying focused and avoiding costly decisions during changing times. More...

Do not let yourselves be discouraged or embittered by the smallness of the success you are likely to achieve in trying to make life better. You certainly would not be able, in a single generation, to create an earthly paradise. Who could expect that? But, if you make life ever so little better, you will have done splendidly, and your lives will have been worthwhile. - Arnold Toynbee


Copyright 2009-2018 GVC. All rights reserved.