Rolling Cap

A modification of an interest rate cap. With a standard interest rate cap, the notional amount remains the same at each reset date. If any caplet should expire out-of-the-money, its value is lost forever and the buyer does not have the opportunity to utilise it at some point in the future. The rolling cap seeks to remedy this shortcoming by rolling any un-exercised caplet notional amount onto the next period. Where the cap remains un-utilised, the notional amount will continue to increase, providing increased protection to the buyer. A rolling cap where the buyer has the choice of what amount to roll forward is known as a super flexible cap.