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Collar

AAamir5y ago
Dear tutor, In case of borrower, how do we select which strike prices to buy put and sell call for collar?
Ssm1235y ago#1
Can you also help to clarify setting up a collar if I'm depositing funds? Confused myself
John MoffatJohn MoffatTutor5y ago#2
It partly depends on how many exercise prices are available because if there are more than two you are able to suggest more than one collar. A borrower will buy a put option and sell a call option. The strike price for the call option will have to be higher than that for the put option (in order to fix both a maximum and a minimum effective interest rate). A depositor will buy a call option and sell a put option. Have you both watched my free lecture on interest rate options and collars (and read our free lecture notes on collars)?
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