You are on page 1of 2

19.05.

04

Maturity Cap

Mortgage loans or loans to municipals often consist of a fixed maturity and constant payments that
include interests (fixed rate) and amortisation. During the tenor of these loans the interest payment
part of the fixed payments are decreasing whereby the amortisation is increasing. In most cases
these loans will amortise to zero until maturity. If a floating rate is the basis for the interest part of
the fixed payments, the whole loan could be (a) amortised before maturity or (b) not reach the
agreed final amount (e.g. zero). In case (b) a maturity cap will provide the buyer of this instrument
with a final payment that is

Max [0; P(n) – X]

P(n)= remaining capital of loan at maturity


X= agreed final amount of loan

Details
Start Date Spot, or Forward Start

Maturity 1 Year up to 40 Years

Advanced Maturity The transaction will terminate and no further payments are
due if the remaining capital has reached the agreed final
amount (e.g. zero) before maturity of the trade

Currency Euro, USD, GBP, CHF, JPY

Notional 1.000.000,00 and more

Remaining Capital P(i) P(1) is know


P(i) = Max [0; P(i-1)*(1+r(i-1)/F)-K]
i = 2,…,t

r(i) Reference Rate± Spread


r(1) First Fixing is known. If r(1) = r(2)=…= r(t) the transaction will
amortise to the agreed amount 0
F Frequency of amortisation 1 Month to 12 Months
t Tenor of this trade in months
K Constant payments
r (1) / F * (1 + r (1) / F ) t
K = P(1) *
(1 + r (1) / 12) t − 1

Reference Rate 1 Month up to 12 Months Euribor / Libor± Spread


Maturity Reference and Frequency of amortisation must not be
identical in terms of tenor

Reference Fixing Upfront or In Arrears

 Zins-/Kreditprodukte - Marktanalyse u. Produktentwicklung 1/2


Seite(2), 19.05.04

Payment at maturity If the remaining capital at maturity is greater than the prede-
fined capital, the buyer of the Cap will receive from the
seller of the Cap this different amount

Cap counterparts BGB, LBB or other counterparts

Position for LBB / BGB long and short

 Zins-/Kreditprodukte - Marktanalyse u. Produktentwicklung 2/2

You might also like