Floor and Cap on Interest Rate

Hello Everyone,

Please help me to understand why FRN issuer will require interest rate floor .

He is issuer so he should be most concern about the increasing LIBOR (coupon) ,thus cap is more helpful to him.

How floor will help in this case?


An FRN issuer won’t require an interest rate floor. They’d like an interest rate cap, but that’s an option in their favor, so they have to pay for it; a common method of paying for an interest rate cap is to include an interest rate floor as well (for which the bondholder has to pay).

Hi magician,

That means it complete issuers interest collar by Short Put position (for purchase of call) and Long Call (for protection).

Please correct or complete me


You got it!