O'Reilly logo

Advanced Quantitative Finance with C++ by Alonso Peña Ph.D

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Advanced example – IRS with Cap (IR2)

In this second example, we consider the pricing of an IRS with a cap The details of the approach are shown in the following Bento Box template advanced example:

Advanced example – IRS with Cap (IR2)

Bento Box template for advanced example (IR2)

Our target is to compute the net present value of the swap as we did earlier.

An IRS cap is just like a standard IRS but with one key difference—at each payment date, we compute the maximum between (a) the difference between the floating rate and the strike and (b) zero. With this difference, we compute the value of a caplet; the cap is simply the sum of the caplets contained in the IRS.

The algorithm is shown ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required