- A type of embedded option found in structured investment products, that limits upside potential of the product over its life.
In Principal Protected Notes, an investor receives a guarantee providing downside protection on the investment. A cost of this downside protection is that the investor will not participate in the full upside potential of the underlying investment. The underlying investment or reference portfolio can be capped locally or globally. As an example, if the limit is expressed in terms of a participation rate of 80% of the total return of the reference portfolio, for the life of the contract, then that would considered a globally-capped contract.
Investment dictionary. Academic. 2012.
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