giants2010

coshair Wrote:
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> the explanation is correct.
>
> the easiest method is to draw a picture for the
> options payoff (TO DRAW A PAYOFF PUCTURE):
>
> long call
>
> short put
>
> if they have the same exercise price, you can get
> them into one straight line, which is the same
> with a fixed bond payoff.
>
> also, the initial payoff is also 0, for which you
> can use the money from shorting the put option to
> long the call.

That's fine if the question was asking for the effects of the collar; but it's asking for the combined effect of the collar and the floating rate bond.

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