Interest Rate Caps, Floors and Collars
Interest Rate Caps, Floors and Collars are option-based Interest Rate Risk Management products.
These option products can be used to establish maximum (cap) or minimum (floor) rates or a combination of the two which is referred to as a collar structure. These products are used by investors and borrowers alike to hedge against adverse interest rate movements.
A Cap provides variable rate borrowers with protection against rising interest rates while also retaining the advantages of lower or falling interest rates.