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interest rate collar
AFM
In this question if instead of Cap option, collar option was taken would that be more advantageous? Video Details Advanced Financial Management - AFM Interest Rate Risk Management 37. Illustration # 16
Answers (3)
Sriram Somayajula Admin
But no details of floor are available - so how will you compute If collar were more beneficial
Similar was asked in the recent paper so wanted to understand the approach for answering the question
Thread Starter
Priyanka UdeshiSimilar was asked in the recent paper so wanted to understand the approach for answering the question
I know. That was weird. You can state that in a collar you sell a floor. If floor is set at lowest rate the interest has gone to in the questions then floor will never be invoked When such a floor is sold, you receive premium That premium will reduce your outflow of 70 or 80 bps and If it that premium received is also 70 or 80 bps then the collar can become a zero cost collar
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