Interest Rate Collar

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

Interest Rate Collar

Postby swarnendupathak » Thu Nov 01, 2012 2:02 pm

I have encountered one article regarding Interest rates collar, but bit confused. I was under the impression that Interest rate collar can be created by two ways (a) Long CAP + Short FLOOR (b) Short CAP + Long FLOOR, but bit confused, can u please confirm, to construct the collar with above two combinations are right or wrong??? or there are other methods/combination are possible for creating a collar.


Swarnendu

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Interest Rate Collar

Postby content.pristine » Thu Nov 01, 2012 8:36 pm

There are many ways to make a collar.
2 of them you mentioned your post.
3. If you have a floating rate bond with both cap and a floor, it is also called a collar. This way both the investor and the issuer gets protected if there is a huge change in reference rate.
4. You can have a collar if you have a covered call and protective put.

The idea is for a collar, the payoffs lie in a certain range, no matter what the underlying is at expiry.

Hope this helps!
8-)

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

Re: Interest Rate Collar

Postby swarnendupathak » Fri Nov 02, 2012 9:20 am

Thanks...sure it will help me a lot

Swarnendu


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