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. Some debt instruments leverage the particular effects of interest rate changes, most commonly in inverse floaters.
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). The coupon leverage is 2, in this example, and the reference rate is the 1-month LIBOR.
References
- "Coupon leverage". Risk Glossary. Retrieved 2008-06-18.
- Marshall, John Francis (2000). Dictionary of Financial Engineering: Over 2,000 Terms Explained. John Wiley & Sons. p. 51. ISBN 0-471-24291-8.
- "Coupon leverage". DG Commercial Loans. Archived from the original on 2011-07-09. Retrieved 2008-06-18.
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