Knock-Out Cap or Floor

A cap or floor with a “knock-out” feature added to it. Should some defined underlying, say LIBOR, ever reach the prescribed knock-out level on a rollover date, the cap/floor is terminated or “knocked-out”. This termination can be either for the entire remaining life of the option or only for the period to which that fixing applies. Interest rate caps and floors can be knocked-out with reference to a wide range of underlyings, including LIBOR, FX, commodity and equity levels.