Fairmat Example

Collar Interest Rate Swap is characterized, for Party A, by an outflow indexed to a short term rate (e.g. EUR 3-Months Euribor) plus a fixed component (spread) whose fluctuation is bounded within a minimum  and maximum rate. Note that lower / higher rate could differs from floor / cap strike rate more than fixed spread component. In this case payoff is not linear due to the presence of digital (or binary) options.

Attachments

IRS Collar Template IRS Collar Documentation