Interest rate options time period

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March 4, 2017 at 7:32 am #375438
Abdul Rafay
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Sir, the options we deal with are short term for 3-months.
However, in the answer for question 54 Troder (6/03) in BPP kit, in part A we are told that caps (interest rate caps) can provide long term protection for upto ten years. Then in question 62 Phobos part c we are told that these are short term instruments not viable to hedge against a loan of 6 years.
Which one is it? Or is Troder talking about OTC options while the latter about traded?
March 4, 2017 at 10:19 am #375470
John Moffat
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OTC options can be for any period, whereas exchange traded options are for 3 months.
Calculations in the exam are on traded options, but part (a) of Troder was asking generally about caps and collars without specifying whether OTC or traded.
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