Business and Personal Finance Dictionary

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• POWER CAP
  
  Is a derivative that pays off from the long's perspective in an exponential manner. If the current market price of the benchmark is greater than the strike, then the long receives payment. The payment is determined by raising to the predetermined power the difference between the current price and the strike price. For the case of a 2 power cap, or raised to the second power, the difference between the current market and the strike is squared. For a cubed power cap, the payoff would be the difference between the current price less the strike raised to the third power. The powers can be whatever is agreed upon. It should be noted that the risk profiles show abrupt and accelerating movements.
  
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