Collared Floater with Participating Caps and Floors

Banking
Collateralization
March 27, 2021
Derivatives
Collared Swap
March 27, 2021

An floater that is embedded with increased participation mechanism (such as that of a participating cap/ participating floor). In other words, the holder can get more participation levels as the cap strikes rise for each successive coupon period. The payoff is given by:

Payoff= cap strike – participating rate * (strike rate – floating rate)

The floating rate is a market reference rate for floating interest rates (e.g., LIBOR).

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