Derivative Instruments

Interest Rate Derivatives—We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows. The interest rate derivatives include interest rate caps and interest rate floors, which are subject to master netting settlement arrangements. All derivatives are recorded at fair value.

The following table summarizes the interest rate derivatives we entered into over the applicable periods:



	Year Ended December 31,
Interest rate caps	2019			2018			2017
Notional amount (in thousands)	$	391,000		$	727,000		$	844,200
Strike rate low end of range	3.00		%	2.43		%	3.00		%
Strike rate high end of range	7.80		%	7.80		%	11.61		%
Effective date range	January 2019 - December 2019			February 2018 - December 2018			January 2017 - December 2017
Termination date range	March 2020 - October 2021			March 2019 - June 2020			March 2018 - September 2019
Total cost of interest rate caps (in thousands)	$	115		$	362		$	375

Interest rate floors
Notional amount (in thousands)	$	2,000,000		$	4,000,000		$	3,850,000
Strike rate low end of range	1.63		%	1.38		%	1.00		%
Strike rate high end of range	1.63		%	2.00		%	1.50		%
Effective date	January 2019			July 2018			September 2017 - December 2017
Termination date range	March 2020			June 2019 - September 2019			March 2019 - June 2019
Total cost of interest rate floors (in thousands)	$	75		$	138		$	140

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No instruments were designated as cash flow hedges

Interest rate derivatives consisted of the following:



Interest rate caps⁽¹⁾	December 31, 2019			December 31, 2018
Notional amount (in thousands)	$	968,000		$	1,292,500
Strike rate low end of range	3.00		%	2.43		%
Strike rate high end of range	7.80		%	11.61		%
Termination date range	January 2020 - October 2021			January 2019 - June 2020
Aggregate principal balance on corresponding mortgage loans (in thousands)	$	870,000		$	805,500

Interest rate floors^{(1) (2)}
Notional amount (in thousands)	$	5,000,000		$	10,850,000
Strike rate low end of range	(0.25		)%	(0.25		)%
Strike rate high end of range	1.63		%	2.00		%
Termination date range	March 2020 - July 2020			March 2019 - July 2020

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⁽¹⁾	No instruments were designated as cash flow hedges


⁽²⁾	Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.

Credit Default Swap Derivatives—We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. As of December 31, 2019, we held a credit default swap with a notional amount of $50.0 million, an effective date of August 2017 and an expected maturity date of October 2026. Assuming the underlying bonds pay off at par over their remaining average life, our estimated total exposure for these trades was approximately $1.2 million as of December 31, 2019. Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparties when such change in market value is over $250,000.

Options on Futures Contracts—During the year ended December 31, 2016, we purchased an option on Eurodollar futures for a total cost of $124,000 and a maturity date of June 2017. During the years ended December 31, 2019, 2018 and 2017, we made no such purchases.