An interest rate derivative which protects the buyer from changes in floating rates above and below a specified range. With an interest rate collar, payments are made to the buyer at the end of each reset period in case the interest rate breaks out the preset strike range. In that sense, this instrument combines the purchase of an interest rate cap and the sale of an interest rate floor to set up a range out of which interest rate fluctuations would have no adverse effect on the buyer.
November 16, 2023