collars on deposits — OpenTuition Forums

Ssilentassassinor12y ago

hi sir when we borrow money, then in collar, we pay a premium on ceiling (put option) and receive a premium on floor (call option). i wanna ask can i reverse this treatment if applying collar on deposits.? thnx

John MoffatTutor12y ago#1

Yes - it would be exactly the same but the other way round :-)

Ssilentassassinor12y ago#2

Thanks alot sir one more query regarding collars when evaluating collars, if we get a gain on ceiling we add it but if we get a loss then we ignore it. This is done by examiner in ALECTO(pilot paper). Similarly in floor we include loss but ignore gain. Are the above treatments correct? And also for collar for deposit, will the treatment be reversed? Thanks

John MoffatTutor12y ago#3

Yes - all correct :-) (It is not so much that you ignore it, it is that the option will not be exercised. If it would result in a loss then you would not exercise the option.)

Ssilentassassinor12y ago#4

Thanks a billion :-)

John MoffatTutor12y ago#5

You are welcome :-)

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