Hi
I don't fully understand why in this instance each caplet is thought of as a put option.
"An interest rate cap, as mentioned above, consists of a series of caplets, each of which allows the owner of the caplet to exercise the option when interest rates rise above the caplet strike. These caplet options become valuable when interest rates rise above the strike which means that the price of a short-term zero-coupon bond over the same period would fall below a certain price. So each caplet can be thought of as a put option on the price of a zero-coupon bond or a call option on the interest rate that applies over the period."
Please will you help with offering an alternate explanation?
I don't fully understand why in this instance each caplet is thought of as a put option.
"An interest rate cap, as mentioned above, consists of a series of caplets, each of which allows the owner of the caplet to exercise the option when interest rates rise above the caplet strike. These caplet options become valuable when interest rates rise above the strike which means that the price of a short-term zero-coupon bond over the same period would fall below a certain price. So each caplet can be thought of as a put option on the price of a zero-coupon bond or a call option on the interest rate that applies over the period."
Please will you help with offering an alternate explanation?