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Cap and Floor Pricer

Updated Daily. Last Update: 5/24/2024

Our Cap and Floor Pricing model has the capability to price SOFR hedges out to 7 years and up to a 7.00% strike. Meant for discussion purposes (please call or email us for a more precise quote!), this resource is great for quickly ballparking various scenarios, along with the ability to analyze the anticipated protection (projected payout) and month-by-month cost breakdown.

An Interest Rate Cap is a series of options contracts on SOFR that hedge floating rate payers against a rise in interest rates.  Borrowers can use these contracts as a way to limit their risk to rising interest rates.

Cap and Floor Pricing is driven primarily by two factors: 1) Interest Rate Expectations, and 2) Implied Volatility.  Interest Rate Expectations are easy to track.  If front-end swap rates (see our home page) move higher:

  • The more likely a cap is to pay out, which increases the cost of the cap.
  • The less likely a floor is to pay out, which decreases the cost of the floor.

Volatility is the measure of confidence, or lack thereof, that traders have in current rate expectations.  The higher volatility is, the greater the range of expected outcomes, the more a trader will charge.

You can browse our Resource Library for more information on how caps and floors work.  If you’re new to these hedges, we recommend starting with:

 

Caps

Interest Rate Caps 101

Time Value Impact on Cap Pricing

Agency SOFR Caps

Floors

Buying out the Floor

Capping Below the Floor

Buy Out your Floor While you Still Can

 

Our Team can answer any questions you may have, as well as help provide guidance when structuring a cap.  You can contact us at CapTeam@pensford.com, or call us at (704) 887-9880.