Key question
Which instrument — swap, cap, or collar — is the most efficient way to hedge floating-rate debt?
Monitor the cost of hedging
The hedge premium — the difference between the effective rate from a hedging strategy and the realized floating rate over the same period — measures what the instrument cost relative to staying floating.
Select the optimal instrument for today's rate environment
Instruments differ in both cost and risk reduction — the goal is to find the one that delivers the most volatility reduction per unit of hedge premium.
↑ One-sided vol (residual risk)
Hedging Strategy Cost
Full rate certainty at +1.44%/yr above floating — the highest cost among the four instruments, with zero residual risk.
Average overpayment from the selected hedging instrument
+1.44%/yr
vs floating rate
Volatility Reduction
100%
vs floating rate
Instrument Efficiency in Today's Rate Environment
Hedge efficiency — vol reduction ÷ hedge premium — measures how much risk reduction each unit of cost provides. The ATM Cap achieves the highest efficiency by preserving participation in rate decreases while fully protecting against increases.
Demo is based on historical data. In the full version — current data, your currency, your company's portfolio.