This development provides market-standard pricing models (and associated greeks) for a range of interest rate barrier caps and floors. The model caters for instruments with the following features and limitations:
- Like standard caps and floors, barrier caps and floors are typically made up of a series of caplets or floorlets (optlets).
- Options can have either single or double barriers.
- Barrier monitoring is at the option expiry date only. Barrier options with continuous monitoring will be handled in a future development.
- All options are assumed to be structured with payment in arrears. That means that the relevant rate-set is assumed to occur at the start of each rate-set period, with payment made at the end of the period.
Copyright 2013 Hedgebook Ltd.