Interest Rate Straddle

This Issue in United States

Interest Rate Straddle

Concept of Interest Rate Straddle in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): An interest rate transaction where the buyer pays a premium to the seller to buy a cap and a floor with identical details including the cap and floor rates. At set intervals the buyer receives from the seller the difference between the pre-agreed rate and the current floating rate. The buyer of a straddle believes that the market is very volatile and is unsure which direction the rates will move.

Resources

See Also

• Derivatives Contract