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Lecture_14 - 14 Interest Rate Exotics We study digital...

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1 14 Interest Rate Exotics We study digital options, range notes, and index-amortizing swaps. Digital options are used because they provide similar “insurance” to caps and floors, but they are cheaper. Range notes provide a partial hedge for floating rate loans with caps and floors attached. Index-amortizing swaps provide a partial hedge for the prepayment option embedded in mortgage backed securities.
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