capbyhjm
Price cap instrument from Heath-Jarrow-Morton interest-rate tree
Syntax
Description
Examples
Price a 3% Cap Instrument Using an HJM Forward-Rate Tree
Load the file deriv.mat
, which provides HJMTree
. The HJMTree
structure contains the time and forward-rate information needed to price the cap instrument.
load deriv.mat;
Set the required values. Other arguments will use defaults.
Strike = 0.03; Settle = datetime(2000,1,1); Maturity = datetime(2004,1,1);
Use capbyhjm
to compute the price of the cap instrument.
Price = capbyhjm(HJMTree, Strike, Settle, Maturity)
Price = 6.2831
Compute the Price of an Amortizing Cap Using the HJM Model
Load deriv.mat
to specify the HJMTree
and then define the cap instrument.
load deriv.mat;
Settle = datetime(2000,1,1);
Maturity = datetime(2004,1,1);
Strike = 0.045;
CapReset = 1;
Principal ={{datetime(2001,1,1) 100;datetime(2002,1,1) 80;datetime(2003,1,1) 70;datetime(2004,1,1) 30}};
Price the amortizing cap.
Basis = 1; Price = capbyhjm(HJMTree, Strike, Settle, Maturity, CapReset, Basis, Principal)
Price = 1.4588
Input Arguments
HJMTree
— Interest-rate tree structure
structure
Interest-rate tree structure, specified by using hjmtree
.
Data Types: struct
Strike
— Rate at which cap is exercised
decimal
Rate at which cap is exercised, specified as a NINST
-by-1
vector
of decimal values.
Data Types: double
Settle
— Settlement date for cap
datetime array | string array | date character vector
Settlement date for the cap, specified as a NINST
-by-1
vector using a datetime array, string array, or date character vectors. The
Settle
date for every cap is set to the
ValuationDate
of the HJM tree. The cap argument
Settle
is ignored.
To support existing code, capbyhjm
also
accepts serial date numbers as inputs, but they are not recommended.
Maturity
— Maturity date for cap
datetime array | string array | date character vector
Maturity date for the cap, specified as a NINST
-by-1
vector using a datetime array, string array, or date character vectors.
To support existing code, capbyhjm
also
accepts serial date numbers as inputs, but they are not recommended.
CapReset
— Reset frequency payment per year
1
(default) | numeric
(Optional) Reset frequency payment per year, specified as a
NINST
-by-1
vector.
Data Types: double
Basis
— Day-count basis of instrument
0
(actual/actual) (default) | integer from 0
to 13
(Optional) Day-count basis representing the basis used when annualizing the input
forward rate, specified as a NINST
-by-1
vector
of integers.
0 = actual/actual
1 = 30/360 (SIA)
2 = actual/360
3 = actual/365
4 = 30/360 (PSA)
5 = 30/360 (ISDA)
6 = 30/360 (European)
7 = actual/365 (Japanese)
8 = actual/actual (ICMA)
9 = actual/360 (ICMA)
10 = actual/365 (ICMA)
11 = 30/360E (ICMA)
12 = actual/365 (ISDA)
13 = BUS/252
For more information, see Basis.
Data Types: double
Principal
— Notional principal amount
100
(default) | numeric
(Optional) Notional principal amount, specified as a
NINST
-by-1
of notional principal amounts, or a
NINST
-by-1
cell array, where each element is a
NumDates
-by-2
cell array where the first
column is dates and the second column is associated principal amount. The date
indicates the last day that the principal value is valid.
Use Principal
to pass a schedule to compute the price for an
amortizing cap.
Data Types: double
| cell
Options
— Derivatives pricing options structure
structure
(Optional) Derivatives pricing options structure, specified using derivset
.
Data Types: struct
Output Arguments
Price
— Expected price of cap at time 0
vector
Expected price of the cap at time 0, returned as a NINST
-by-1
vector.
PriceTree
— Tree structure with values of cap at each node
vector
Tree structure with values of the cap at each node, returned as a MATLAB® structure of trees containing vectors of instrument prices and a vector of observation times for each node:
PriceTree.tObs
contains the observation times.PriceTree.PBush
contains the clean prices.
More About
Cap
A cap is a contract that includes a guarantee that sets the maximum interest rate to be paid by the holder, based on an otherwise floating interest rate.
The payoff for a cap is:
For more information, see Cap.
Version History
Introduced before R2006aR2022b: Serial date numbers not recommended
Although capbyhjm
supports serial date numbers,
datetime
values are recommended instead. The
datetime
data type provides flexible date and time
formats, storage out to nanosecond precision, and properties to account for time
zones and daylight saving time.
To convert serial date numbers or text to datetime
values, use the datetime
function. For example:
t = datetime(738427.656845093,"ConvertFrom","datenum"); y = year(t)
y = 2021
There are no plans to remove support for serial date number inputs.
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