SAMPLE EXAM 1
Functions
Standard and barrier options on interest rates.

Functions

cfl::MultiFunction prb::futureOnCheapToDeliver (double dFutureMaturity, unsigned iFutureTimes, const std::vector< cfl::Data::CashFlow > &rBonds, cfl::InterestRateModel &rModel)
 

Detailed Description

This module contains functions that compute prices of standard and barrier options in cfl::InterestRateModel.

Function Documentation

cfl::MultiFunction prb::futureOnCheapToDeliver ( double  dFutureMaturity,
unsigned  iFutureTimes,
const std::vector< cfl::Data::CashFlow > &  rBonds,
cfl::InterestRateModel rModel 
)

Computes the future price of the cheapest bond to deliver. The set of times, when the future price is evaluated is given by

t(i) = rModel.initialTime() +
i*(dFutureMaturity-rModel.initialTime())/iFutureTimes,
i = 0, ... , iFutureTimes-1

Denote by F(t(i)) the future price determined at time t(i). Recall that it costs nothing to enter into the future contract at time t(i) and that short position entered at time t(i) assumes the following transactions:

  1. At time t(k) such that i < k < iFutureTimes short position pays the amount F(t(k+1)) - F(t(k)).
  2. At maturity dFutureMaturity short position receives future price F(t(iFutureTimes-1)) defined at the previous time step and delivers any bond from rBonds at its discretion.
Parameters
dFutureMaturityThe maturity of the future contract.
iFutureTimesThe number of future times, that is, the times when the future price is determined.
rBondsThe parameters of the underlying bonds. We assume that the issue times for all bonds equal dFutureMaturity.
rModelReference to implementation of InterestRateModel.
Returns
The price of the option as the function of the initial values of the state processes in the model.