Previous Topic

Next Topic

oIRcap1_CFM( ) Example

Specification

Consider a 5-year interest rate cap that has an effective date of 10 March 2003, a maturity date of 10 March 2008, and a notional value of $100,000. The cap, which has an annual reset frequency, has a strike rate of 8.25% and a volatility of 30%, while the Business Day and Accrual Basis conventions are 'following day' and 'actual/360' respectively. The rate reset cycle is computed backwards from the maturity date and rates are interpolated from the zero rates.

What is the cash flow map for the cap assuming a valuation date of 12 August 2003?

 

 

Function Specification

=oIRCap1_CFM(1, "12/8/2003", "10/3/2003", "10/3/2008", 100000, 0.0825, 1, 3, 3, 2, 0.3, 1, R1:T24, V1:X24, Z1:Z75)

 

 

Parameter Name

Parameter Value

 

 

 

 

 

Option Type

1

 

 

Value Date

12/8/2003

 

 

Effective Date

10/3/2003

 

 

Maturity Date

10/3/2008

 

 

Notional

100,000

 

 

Strike Rate

0.0825

 

 

Reset Frequency

1

 

 

Accrual Basis

3

 

 

Business Day Convention

3

 

 

Interpolation Method

2

 

 

Volatility

0.3000

 

 

Date Generation

1

 

 

Reset Curve

R1:T24

See Zero Curve

 

Discounting Curve

V1:X24

See Zero Curve

 

Holiday Schedule

Z1:Z75

See Holiday Schedule

 

 

Solution

The following results are obtained:

Leg

Effective Date

Maturity Date

Days in Period

Days to Maturity

Strike Rate

Forward Rate

Notional Value

 

1

10-Mar-03

10-Mar-04

366

-155

8.2500%

5.3142%

$100,000

2

10-Mar-04

10-Mar-05

365

211

8.2500%

5.6423%

$100,000

3

10-Mar-05

10-Mar-06

365

576

8.2500%

5.7994%

$100,000

4

10-Mar-06

12-Mar-07

367

941

8.2500%

5.9652%

$100,000

5

12-Mar-07

10-Mar-08

364

1308

8.2500%

6.1317%

$100,000

 

 

 

 

 

 

 

 

Solution (continued...)

 

Discount Factor

Optlet Value

Optlet Delta

Optlet Gamma

Optlet Theta

Optlet Vega

Leg
Type

 

 

 

0.969386

0.000000

0.000000

0.000000

0.000000

0.000000

Cap

 

0.916931

28.61722

0.055365

8.529272

-0.001206

0.004709

Cap

 

0.866011

213.0361

0.197093

11.96066

-0.001693

0.019044

Cap

 

0.816366

413.6441

0.271645

10.32310

-0.001423

0.028411

Cap

 

0.768707

587.1336

0.311885

8.559568

-0.001115

0.034598

Cap

 

 

 

 

 

 

 

 

Return to www.derivativepricing.com website

Copyright 2013 Hedgebook Ltd.