7

Interest Rate Derivatives – OTC Multiple Settlement Instruments

‘The market for longer-dated derivatives has increased enormously: “long” can now mean periods up to 50 and, in some cases, up to 75 years. The only limiting factor is credit lines.’

Introduction

Interest rate caps and floors

Interest rate collars

Interest rate swaps

Quiz

INTRODUCTION

The interest rate derivatives that we have considered so far have involved a single period of interest rate exposure: for example, a 3s–6s FRA will cover the 3-month period commencing in 3 months’ time. Once the appropriate cash settlement has been paid/received under the FRA, it has no further use. Likewise, an interest rate option, once it has been cash settled or abandoned, has no further ...

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