19

MANAGING INTEREST RATE RISK – USING OPTIONS AND OPTION-BASED INSTRUMENTS

19.1 Interest rate guarantees

19.2 Using caps and floors

19.3 Collars, participating caps, spread hedges and other variations

19.4 Using captions and swaptions

19.5 Comparison of interest risk management tools

The common feature of all the techniques discussed in the previous chapter was that they guaranteed a certain outcome. Whether the original exposure arose from a single short-term forward rate, a series of short-term forward rates, or a single long-term spot rate, the requisite solution attempted to eliminate risk completely. For some exposed to interest rate risk, this remedy might be just what they wanted. However, as the introduction to Chapter 10 has pointed ...

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