an interest rate floor on a floating-rate note (from the issuer's perspective) is equivalent to a series of:
A) long interest rate puts
B) short interest rate puts
C) short interest rate calls
the answer's B, but I'm pretty sure it's A. Any thoughts on this?作者: mnieman 时间: 2011-7-11 17:42
When you see short think selling and when you see long think buying (generally speaking). So the issuer is selling a put to the purchaser therefore the issuer is in a short position on a put; interest rate floor. From the Buyers perspective; the buyer is long on a put (interest rate floor).作者: leadcfa 时间: 2011-7-11 17:42
Yup, B. nice n easy explanation too. Thanks, Zesty作者: dcfox83 时间: 2011-7-11 17:42
another way to think about this is to think about who benefits from the floor.
if the floor is at 2% and rates are at 1%, the floor kicks in and the receiver gets 2%.
the issuer is worse off and would never exercise a long put or call that puts them in a worse position, so it has to be a short.作者: waldziuchna 时间: 2011-7-11 17:42
