again utilize Bloombergs Cap, Floor, Collar Calculator presented in Exhibit 12.19. Consider a hypothetical one-year floor on three-month LIBOR with a strike rate of 2.5%. The settlement date for the agreement is November 30, 2001 and the expiration date is November 30, 2002. If three-month LIBOR is below the strike rate on this date, say, 2%, the payoff of the floor assuming the notional amount is $1,000,000 is computed as follows: THEGLOBALMONEYMARKETS     $1,000,000 ´ (2.5% - 2.0%) ´ 92/360 = $1,277.78   This payment is made on May 31, 2002. Note that the day count conven- tion is Actual/360 one again. A floor can be thought of as a series of put options on the underlying reference rate in this case, three-month LIBOR. The value of the floor is the sum of the values of all the individual put options. In the "PRICING" box, the "Premium" for our hypothetical cap, the premium is 0.2140% or approximately $2,140.   Collars The combination of a cap and a floor creates a collar, which is a corridor that fixes interest payment or receipt levels. A collar is sometimes advan- tageous for borrowers because it is a lower cost than a straight cap. A col- lar protects against a rise in rates, and provides some gain if there is a fall down to the floor rate. The cheapest structure is a collar with a narrow spread between cap and floor rates.   CHAPTER13 AssetandLiabilityManagement     he activity of commercial and investment banks in the money market centers around what is termed asset and liability management of the main banking book. This book (also known as the liquidity book) is comprised of the net position of the banks deposits and loans as well as other short-term, high-quality debt instruments (e.g., certificates of