Binary cap
For whom it is intended:
- Particularly for legal entities
Definition:
A binary cap is a transaction whereby the seller of the option pays (once or periodically) fixed amounts in a specified currency calculated from a notional amount in the same currency and a pre-defined payout if the difference between the floating interest rate and the limit interest rate (cap) is a positive value or zero, i.e. the floating interest rate for the given interest period is higher than or equal to the limit interest rate (cap).
The buyer of the option pays the option premium to obtain this interest hedge.
The payout is expressed as an annual percent of the notional amount for the given interest period.
Advantages of the product:
- Sets off the risk of an increase in interest rates in a pre-defined manner
- The buyer has the possibility to profit from a drop in interest rates.
- Flexibility of parameters – can easily be adjusted to the structure of the underlying instrument (loan)
- Can be sold at any time
Disadvantages of the product:
- The buyer must pay the option premium.
Variations of the product:
- Digi COLLAR - je kombinací digi CAPu a digi FLOORu. Obvykle nabízeno jako beznákladová strategie
- op?ní strategie a kombinace s úrokovým swapem šité na míru podle aktuálních tržních podmínek
Conditions of concluding a transaction:
- Master Agreement for Financial Transactions
- Limit for treasury operations
- Minimum volume of EUR 1,000,000
For more information, please contact your bank advisor.
Binary floor
For whom it is intended:
- Particularly for legal entities
Definition:
A binary floor is a transaction whereby the seller of the option pays (once or periodically) fixed amounts in a specified currency calculated from a notional amount in the same currency and a pre-defined payout if the difference between the floating interest rate and the limit interest rate (floor) is a negative value or zero, i.e. the floating interest rate for the given interest period is lower than or equal to the limit interest rate (floor).
The buyer of the option pays the option premium to obtain this interest hedge.
The payout is expressed as an annual percent of the notional amount for the given interest period.
Advantages of the product:
- Sets off the risk of a drop in interest rates in a pre-defined manner
- The buyer has the possibility to profit from an increase in interest rates.
- Flexibility of parameters – can easily be adjusted to the structure of the underlying instrument
- Can be sold at any time
Disadvantages of the product:
- The buyer must pay the option premium.
Variations of the product:
- A binary collar is a combination of a binary cap and a binary floor. It is usually offered as a zero cost strategy.
- Option strategies and combinations with an interest rate swap custom tailored according to current market conditions
Conditions of concluding a transaction:
- Master Agreement for Financial Transactions
- Limit for treasury operations
- Minimum volume of EUR 1,000,000
For more information, please contact your bank advisor.
