Globally-Capped Contract

DEFINITION of 'Globally-Capped Contract '

A type of option that guarantees a minimum return but puts a cap on profits. A globally-capped contract differs from a locally-capped contract in that the cap is on the life of the contract rather than quarterly or other intermediate returns. Globally-capped contracts have become very popular amongst investors that are interested in structured investment products that are less volatile than straight options.

BREAKING DOWN 'Globally-Capped Contract '

Although both globally-capped and locally-capped contracts are very popular, many academics have questioned why the latter are more in demand than the former. According to Standard Finance Theory, the simpler globally-capped contracts should be preferred to more complex path-dependent contracts like those that are locally capped. The reason they are not, some academics contend, is due to unrealistic expectations. Others believe that sellers of retail financial products deliberately design them to be complex, in order to confuse consumers.

RELATED TERMS
  1. Mezzanine Debt

    When a hybrid debt issue is subordinated to another debt issue ...
  2. Principal-Protected Note - PPN

    A fixed-income security that guarantees a minimum return equal ...
  3. Embedded Option

    A provision in a security that is an inseparable part of the ...
  4. Structured Investment Products ...

    A type of investment specifically designed to meet an investor's ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Interest

    The charge for the privilege of borrowing money, typically expressed ...
Related Articles
  1. Fundamental Analysis

    Where's The Market Headed Now?

    Whether up, down or sideways, learn about some of the factors that drive stock market moves.
  2. Options & Futures

    An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.
  3. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  4. Options & Futures

    Principal-Protected Notes: Hedge Funds For Everyday Investors

    PPNs guarantee to return at least 100% of the original investment and have the potential to return much more.
  5. Options & Futures

    Principal-Protected Investments: Risks, Fees And Regulations

    Discover if these instruments hit the right note for you.
  6. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  7. Mutual Funds & ETFs

    5 Vanguard Fixed Income Fund Underperformers

    Learn about three Vanguard fixed income mutual funds that underperform compared to their benchmark indexes. Find out why low expense ratios are important.
  8. Mutual Funds & ETFs

    Top 3 Allianz Funds for Retirement Diversification in 2016

    Discover the top three Allianz funds for retirement diversification in 2016, with a summary of the portfolio's managers, performance and risk measures.
  9. Mutual Funds & ETFs

    3 PIMCO Funds Rated 5 Stars by Morningstar

    Learn about three fixed income mutual funds managed by Pacific Investment Management Company (PIMCO) that have received five-star overall ratings from Morningstar.
  10. Investing

    How Rising Interest Rates Affect Junk Bonds

    We examine the impact of rising interest rates on higher-yielding bonds.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
  3. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  6. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center