# oIRcap2_Price( ) Example

Specification

Consider a 3-year interest rate cap with semi-annual resets that has an effective date of 20 June 2003 and a maturity date of 20 June 2006. The cap has Business Day and Accrual Basis conventions of 'previous day' and 'actual/365' respectively. The rate reset cycle is computed backwards from the maturity date and rates are interpolated from the zero rates. The strike rate and notional schedules can be found by following the appropriate links below.

What is the fair value for the cap assuming a valuation date of 12 August 2003?

Function Specification

=oIRCap2_Price(1, "12/8/2003", "20/6/2003", "", "", "20/6/2006", D1:D10, F1:F10, 2, 4, 2, 2, I1:J24, 1, L1:N24, P1:R24, T1:T75, 0)

Parameter Name

Parameter Value

Option Type

1

Value Date

12/8/2003

Effective Date

20/6/2003

First Coupon Date

Penultimate Coupon Date

Maturity Date

20/6/2006

Notional

D1:D10

See Notional Schedule

Strike Rate

F1:F10

See Strike Rates

Reset Frequency

2

Accrual Basis

4

2

Interpolation Method

2

Volatility

I1:J24

See Volatility Curve

Date Generation

1

Reset Curve

L1:N24

See Zero Curve

Discounting Curve

P1:R24

See Zero Curve

Holiday Schedule

T1:T75

See Holiday Schedule

Output Flag

0

Solution

The following results are obtained:

\$8,224.6760

1.9865

135.0967

-0.009820

0.111748