Detailed Information

The buyer’s right to swap the agreed fixed interest rate and the floating referential interest rate (PRIBOR, EURIBOR, etc.). The buyer pays an option premium to the seller for that right.

The buyer of the interest-rate option is hedged against interest-rate drop or increase. While maintaining the possibility of profiting from their development in the other direction.

No principal is exchanged between the transaction counterparties. If the buyer exercises his right from the option contract, only the difference in the interest-rate payments is settled.

Basic types of Interest Rate Option hedging

Cap is an instrument that hedges the client’s position against an interest rate increase. Used for hedging loans with a floating interest rate, against interest rate growth.

Floor operates on the same basis as the above-mentioned CAP, but this instrument hedges the client’s position against a drop in interest rates.

Collar is a combination of a purchase Cap and sale Floor. It is an instrument that hedges the client’s position in an pre-set interest-rate range. In some cases, a Zero-cost collar can be set, where the cap price equals the floor price.

Notice about potential risks

• An immediate expense for the buyer in the form of an option premium, paid at the time the transaction is arranged

The heightened client-protection provisions based on the European Parliament and the Council Directive 2014/65/EU "The Market in Financial Instruments Directive II" - MiFID II apply to this product.

Contact information

Head of the Global Markets

Global Market Sales

Trading in FX and Interest-Rate Instruments