Interest Rate Options


Options

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Payers Swaption
Receivers Swaption
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Caplet

A caplet is a European call option on an interest rate.
This interest rate is typically LIBOR or EURIBOR.
The interest rate can also be from a Constant Maturity Swap


Example
Lets assume we buy a caplet on 3 month EURIBOR on an amount of EUR 5,000,000 with a strike price of 0.8% and a reset date of 19 July 2016 paying on 19 October 2016.
Lets assume the fixing date is 2 business days before the reset date.
Lets assume the fixing rate is 0.9% on 17 July 2016.
Lets assume we use ACT/360 day count convention


payoff = Notional * max (0, fixing_rate - strike_rate) * Accrual Factor
payoff = 5,000,000 * (0.9 - 0.8) * (92/360)
payoff = 127,777.78


Pricing a Caplet

We can use Blacks formula
We need the following information:
Volatility - (market data)
Discount Curve - (market data)
Notional
Strike Rate -
Fixing Rate -
Fixing Date -
Payment Date -



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