Coupon leverage

Coupon leverage, or leverage factor, is the amount by which a reference rate is multiplied to determine the floating interest rate payable by an inverse floater.^[1] Some debt instruments leverage the particular effects of interest rate changes, most commonly in inverse floaters.^[2]

As an example, an inverse floater with a multiple may pay interest at the rate, or coupon, of 22 percent minus the product of 2 times the 1-month London Interbank Offered Rate (LIBOR).^[3] The coupon leverage is 2, in this example, and the reference rate is the 1-month LIBOR.

See also

• Cash accumulation equation

References

1. ^ "Coupon leverage". Risk Glossary. http://www.riskglossary.com/letters/c.htm. Retrieved 2008-06-18. 
2. ^ Marshall, John Francis (2000). Dictionary of Financial Engineering: Over 2,000 Terms Explained. John Wiley & Sons. p. 51. ISBN 0471242918. 
3. ^ "Coupon leverage". DG Commercial Loans. http://www.dgcommercialloans.com/glossary/c/coupon_leverage.html. Retrieved 2008-06-18.