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Participation
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An option-like structure which typically provides a floor return combined with reduced exposure to a favorable return on the underlying or a ceiling return combined with reduced exposure to an unfavorable return. The reduction in exposure to favorable events usually pays for the protection of the floor or cap. Intuitively, the most useful way to view a participation is as a combination or an average of an option and a forward or as an average of an option and cash. See, for example, Participating Forward Contract (diagram), Participating Interest Rate Agreement (PIRA) (diagram). See also Loan Participation, Indexed Notes.
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