collar

(1) The combination of a cap option and a floor option.

(2) For CMOs, the collar is the range in which certain performance variables ( e.g., yield, average life) are guaranteed to stay. This range is expressed in terms of PSA speeds.

See band.

(3) An informal name for caps and floors. American Banker Glossary

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Refers to the ceiling and floor of the price fluctuation of an underlying asset. A collar is usually set up with options, swaps, or by other agreements. In corporate finance, the collar strategy of buying puts and selling calls is often used to mitigate the risk of a concentrated position in (sometimes) restricted stock. When the restricted owner can't sell the stock, but needs to diversify the risk, a collar transaction is one of the few tools available. Many corporate executives who receive chunks of their compensation in restricted stock need to employ this strategy to mitigate the diversification risk in their overall portfolio. Bloomberg Financial Dictionary

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A combination of a cap and a floor. A collar sets a band within which interest rates will apply ( e.g. 10.5-13.75%), for a given period. Exchange Handbook Glossary

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   A derivative instrument which fixes interest payments within a certain range by combining a long cap and a short floor. The premium generated from the sale of the floor may completely or partly finance the premium to be paid for the cap.

   ► See also Cap, Derivatives, Floor.