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oIRcap2_CFM( ) 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 cash flow map of the cap assuming a valuation date of 12 August 2003?

 

 

Function Specification

=oIRCap2_CFM(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)

 

 

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

 

 

Business Day Convention

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

 

 

Solution

The following results are obtained:

Leg

Reset
Date

Payment Date

Days in Period

Days to Maturity

Strike Rate

Forward Rate

Notional Payment

 

1

20 Jun 2003

19 Dec 2003

182

-53

6.0000%

5.3594%

$1,000,000

2

19 Dec 2003

18 Jun 2004

182

129

6.0125%

5.5179%

$950,000

3

18 Jun 2004

20 Dec 2004

185

311

6.0250%

5.6651%

$900,000

4

20 Dec 2004

20 Jun 2005

182

496

6.0375%

5.7337%

$850,000

5

20 Jun 2005

20 Dec 2005

183

678

6.0500%

5.7869%

$800,000

6

20 Dec 2005

20 Jun 2006

182

861

6.0625%

5.8959%

$750,000

 

 

 

 

 

 

 

 

Solution (continued....)

 

Discount Factor

Optlet
Value

Optlet Delta

Optlet Gamma

Optlet Theta

Optlet Vega

Leg
Type

 

 

 

0.981167

$0.00

0.0000

0.0000

0.00000

0.00000

Cap

 

0.954895

$528.57

0.2659

44.2047

-0.00323

0.01052

Cap

 

0.928241

$1,353.65

0.3917

31.1952

-0.00232

0.01899

Cap

 

0.902441

$1,815.95

0.4277

23.8566

-0.00175

0.02401

Cap

 

0.876996

$2,125.74

0.4425

19.5174

-0.00139

0.02759

Cap

 

0.851950

$2,400.76

0.4587

16.3229

-0.00113

0.03063

Cap

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