SAMPLE EXAM 3
Functions
Standard and barrier options on interest rates.

Functions

cfl::MultiFunction prb::callableCappedFloater (const cfl::Data::CashFlow &rCap, double dLiborSpread, 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::callableCappedFloater ( const cfl::Data::CashFlow rCap,
double  dLiborSpread,
cfl::InterestRateModel rModel 
)

Computes the price of callable capped floater. In this contract, at an exercise time $t_i$ the holder of the option receives the coupon

\[ N \delta t \times \min(L(t_{i-1},t_i)+ \delta L, C) \]

where $L(s,t)$ is the LIBOR rate computed at $s$ for maturity $t$, $N$ is the notional amount (rCap.notional), $\delta L$ is the spread over LIBOR (dLiborSpread), $C$ is the cap rate (rCap.rate) and $\delta t = t_{i} - t_{i-1}$ is the time interval between two payments (rCap.period). The seller can terminate the contract at any exercise time. In this case, in addition to the above coupon he pays the notional. If the contract has not been terminated before, then at maturity the holder receives the above coupon plus notional.

Parameters
rCapThe parameters of the contract. Here rCap.rate defines the cap rate.
dLiborSpreadThe spread over LIBOR rate.
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.