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Capital Guarantee

Inverse Floater

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Know-How - Capital Guarantee

An inverse floater (or inverse floating rate note) is a capital guaranteed product with a link to an interest rate. The product pays a coupon depending on the evolution of that interest rate. The coupon calculation is quite simple: the reference interest rate (or a multiple thereof) is deducted from a constant on every coupon date. The result equals the coupon for that period.

The coupon formula is often equal to:

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Capital Guarantee without Cap

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Know-How - Capital Guarantee

A Capital guaranteed product without cap is composed of a zero-coupon bond and a call option. The capital guarantee part is assured by the zero bond, and the participation is enabled through the call option.

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Shark Notes

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Know-How - Capital Guarantee

Shark notes are classified as short term capital guaranteed products that include a knock-out barrier; they sometimes  feature a "rebate". They can serve two purposes, depending on the way they are structured:

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Floored Floaters

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Know-How - Capital Guarantee

Floored Floaters are capital guaranteed products falling in the range of the fixed income asset class. They pay a yearly, semi-annually or quarterly coupon that is linked to an economic variable such as the 3-month LIBOR (London Interbank Offered Rate). In addition, if the economic variable is lower than a predefined floor, then that floor determines the level of the coupon.

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Ratchet Floater

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Know-How - Capital Guarantee

Ratchet floaters are a type of exotic structure that have periodic caps and a minimum coupon.They fall into the category of fixed income capital guaranteed products.

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