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| ''Risk management''. | | ''Maths - encryption''. |
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| A form of hedge using options. | | A prime number is a positive whole number that is divisible only by itself and 1. |
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| Collar hedges are more complex structures, compared with a simpler cap option or floor option.
| | Some encryption systems make use of very large prime numbers, for example RSA encryption. |
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| An advantage of collars is that they can reduce the net premium paid for the hedge. They do this by adding a short option position to the simple cap or floor. In other words by the corporate hedger ''selling'' an option (in addition to ''buying'' the simple cap or floor option).
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| The premium received by the corporate reduces their net premium payable. The net premium payable is often zero. (This arrangement is called a ''zero cost'' collar.)
| | Examples of small prime numbers include 2, 3, 5, 7 and 11. |
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| It is also possible - though less common - to construct a ''negative cost'' collar, the net premium being ''receivable'' by the corporate.
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| The case where the corporate hedger ''pays'' a net premium for the collar is known as a ''positive cost'' collar.
| | == See also == |
| | | * [[Encryption]] |
| In all cases, the net result and intention is to ‘collar’ the all-in hedged rate achieved within a range which is acceptable to the hedging corporate.
| | * [[Factors]] |
| | | * [[RSA encryption]] |
| Collars are also known as ''cylinders'', ''corridors'' or ''range forwards''.
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| == See also ==
| | [[Category:The_business_context]] |
| * [[Cap]]
| | [[Category:Manage_risks]] |
| * [[Floor]]
| | [[Category:Technology]] |
| * [[Negative cost collar]]
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| * [[Positive cost collar]]
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| * [[Zero cost]]
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Revision as of 15:54, 18 December 2019
Maths - encryption.
A prime number is a positive whole number that is divisible only by itself and 1.
Some encryption systems make use of very large prime numbers, for example RSA encryption.
Examples of small prime numbers include 2, 3, 5, 7 and 11.
See also
