A collar in Fairways Debt is a composite derivative instrument in which the buyer buys a cap at a given strike, and sells a floor at a lower strike.
Collars are mainly used in order to reduce the cost of a cap, by adding risk to the interest rate exposure.
Prerequisite
- Enable the collar transaction type (contact your Finance Active consultant)
Navigate to the Debt & Derivatives Application
- Log in to your Fairways Debt account.
- Select a customer account.
- Navigate to Applications > Debt & Derivatives.
Create a Collar
- Click Add Transaction > Derivative > Collar.
- Complete the form with all relevant details.
Note: Fields marked with an asterisk * are mandatory.
| Field | Description |
|---|---|
| Transaction Reference Code |
Unique reference of the transaction. Identifies the transaction in the portfolio. Note: The reference must be unique among all the entities managed in the account. |
| External Reference Code | Used by external systems to identify the transaction. Used when transactions are imported from or exported to another system. |
| Notional Amount | Notional amount of the collar. |
| Currency | Currency of the notional amount. |
| Premium Type |
Premium paid at the start date of the floor:
|
| Premium | |
| Party |
Entity in the system involved in the transaction. Note: Users can only manage entities available in the current organization. |
| Counterparty | Can be either internal (an entity in the system) or external (a commercial bank). |
| Field | Description |
|---|---|
| Trade Date | Date at which the transaction has been traded. From that date, the system takes the transaction into account as an item of the portfolio. |
| Start Date | Unadjusted start date of the transaction. |
| Maturity Date | Unadjusted maturity date of the transaction. |
| First Roll Date | Unadjusted date of the first payment (useful when the first period is a long or short stub). |
| Field | Description |
|---|---|
| Index | Name of the index used to calculate the floating rate value. |
| Floor Strike | Strike percentage of the floor part of the collar. |
| Cap Strike |
Strike percentage of the cap part of the collar. Note: The cap strike must be greater than the floor strike. |
| Day Count Convention | Computes the day fraction of an interest accrual period. |
| Field | Description |
|---|---|
| Amortization Type | Amortization mode. |
| Field | Description |
|---|---|
| Frequency | Frequency of the payments. |
| Interest Calculation Adjustment | Adjustment mode for the interest calculation. The nominal start and end dates of the accrual period will be adjusted accordingly before computing the interest amount. |
| Payment Date Adjustment | Adjustment mode for the payment date. |
| Last Stub Period | Defines whether the last period should be a short or long stub when it does not match the selected frequency. Short Stub by default. |
Enter the required custom attributes, if any.
- Enable Show Details after Validation to automatically open the new collar profile once created.
- Click Apply.
The new collar displays in the draft portfolio.
Note: The Mark-to-Market, Clean Market Value and Interest Rate Sensitivity (100bp) indicators are not calculated if the collar is defined with a custom index.
Adjustment
Adjustment modes define how the system rolls dates in case of holidays in the calendar.
| Field | Description |
|---|---|
| Unadjusted | Not rolled. |
| Preceding | Rolled to the previous business day. |
| Following | Rolled to the next business day. |
| Modified Preceding | Rolled to the previous business day, only if that day occurs in the same month. Otherwise, rolled to the next business day. |
| Modified Following | Rolled to the next business day, only if that day occurs in the same month. Otherwise, rolled to the previous business day. |
| End of Month (unadjusted) | Rolled to the last day of the month. |
| End of Month (preceding) | Rolled to the last day of the month, then adjusted to the previous business day. |
| Modified Following (year) | Rolled to the next business day, only if that day occurs in the same year. Otherwise, rolled to the previous business day. |