Price a Vanilla Collar

In Fairways Debt, before booking a transaction, you can first price and simulate their schedules.

A collar is a security combining the purchase of a cap and the sale of a floor (buyer’s side) or the sale of a cap and the purchase of a floor (seller's side) to specify a range in which an interest rate will fluctuate. The security insulates the buyer/seller against the risk of a significant rise in a floating rate, but limits the benefits of a drop in that floating rate.

 

Prerequisites

 

Navigate to the Pricer Application
  1. Log in to your Fairways Debt account, e.g. https://login.financeactive.eu.
  2. Select a customer account.
  3. Navigate to Applications > Pricer.

 

Price a Vanilla Collar
  1. Click Vanilla Collar.
  2. Complete the form with all relevant details.

Note: Fields marked with an asterisk * are mandatory.

Field

Description

Market Date

Date on which the option is priced.

Nominal

Nominal amount of the underlying cap and floor, and currency of the option and the underlying.

Note: The reference interest rate (IBOR) is defined according to that currency.

Start Date

Unadjusted start date of the underlying cap and floor.

End Date

Unadjusted end date of the transaction.

Amortization

Notional or nominal depreciation over the life of the option.

Note: Extra fields may display beside depending on the selected mode.

Rate

Note: This field only displays for the progressive amortization mode.

Progressivity rate.

Frequency

Note: This field only displays for the straight line, progressive and custom amortization modes.

Amortization frequency.

Transaction_EN.png

Field

Description

Collar Type

Transaction direction:

  1. Buy Cap Sell Floor: Buyer's side
  2. Sell Cap Buy Floor: Seller's side

Result

Derivatives to price/solve.

Note: The fields beside display depending on the selection.

Collar Price

Note: This field only displays for the Solve Cap Strike and Solve Floor Strike results.

Price of the collar.

Cap Strike

Note: This field only displays for the Price Collar and Solve Floor Strike result.

Strike of the underlying cap.

Floor Strike

Note: This field only displays for the Price Collar and Solve Cap Strike results.

Strike of the underlying floor.

Frequency

Frequency of the interests perceived or paid. This frequency determines the tenor of the index (3 months, 6 months, etc.).

Day Count

Computes the day fraction of an interest accrual period.

Fixing Type

  • In Advance: The reference fixing is the one at the start of the interest rate period.
  • In Arrears: The reference fixing is the one at the end of the period.

Fixing Offset

Number of days to move from the fixing type selected, can be earlier or later, e.g.:

  • -2 for 2 days earlier
  • 2 for 2 days later

Collar_Options_EN.png

Field

Description

Roll Convention

Note: The field value displays depending on the selected end date and stub.

Date rolling convention.

Stub

Defines whether the last period should be a short or long stub when it does not match the selected frequency.

Calendar

Calendars with banking days and holidays of a specific city work with adjustments to provide an accurate schedule.

Payment Date Adjustment

Adjustment mode for the payment date.

First Regular Start Date

Note: This field only displays for the mixed stub.

Start date of the stub.

Last Regular Start Date

Note: This field only displays for the mixed stub.

End date of the stub.

Options_EN.png

  1. Click Apply.

Collar_Price_EN.png

The pricing results display.

Collar_Priced_EN.png

 

Amortization

Mode

Description

Bullet

No depreciation during the lifetime of the transaction. Cumulative depreciations are counted at the end of the transaction term.

Linear

Constant depreciation.

Progressive

The rate is progressive.

Custom

Different values apply to each amortization.

Custom Amortization
  1. Click Edit.

Transaction_EN.png

  1. Double-click the relevant payback amount fields and enter their amounts.
  2. Click Save.

Custom_EN.png

 

 

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