AFM知识点汇总——Interest Rate Collars

1) The main advantage of using a collar instead of options to hedge interest rate risk is lower cost. A collar involves the simultaneous purchase and sale of both call and put option at different exercise price.

2)The option purchased has a higher premium when compared to the premium of the option sold, but the lower premium of the option sold, but the lower premium income will reduce the higher premium payable. With a normal uncovered option, the full premium is payable.

Whereas with a hedge using options the buyer can get full benefit of any upside movement in the price of the underlying asset, with a collar hedge the benefit of upside movement is limited or capped as well.