HW_CMT_Cap() and HW_CMT_Floor() functions  Previous topicNext topicFirst topicLast topic


HW_CMT_Cap() and HW_CMT_Floor() functions

HW_CMT_Cap(argument list…)

HW_CMT_Floor(argument list…)

These function return the price of a cap or floor. However, the index rate is a CMT or a CMS rate, unlike a regular cap or floor. The CMS cap/floor can be valued by making the Treasury zero curve input identical to the swap curve. A proprietary technique is used to generate the valuation, within the framework of the Hull-White model. The function uses the following arguments:

Argument Description Restrictions
Valuation_Date valuation date (e.g. today) valid Excel date number
Strike option strike rate in decimal form (e.g. six percent entered as 0.06) > 0
Last_Reset_Rate previous CMT rate in decimal form, used for valuing seasoned caplets/floorlets > 0
Cap/Floor Start_Date start date of cap/floor valid Excel date number
TIM term of the structure in months > 0
CMT_Rate_term_months term of the rate underlying the floating (CMT) index > 0
CMT_Rate_freq frequency of the CMT indexing rate 1, 2, 4, or 12
CMT_Year_Basis year basis for the CMT rate 360 or 365
CMT_Cap/Floor_freq the frequency of the cap or floor 1, 2, 4, or 12
Holidays array of holiday dates valid Excel date numbers
strictly ascending order
Govt_Zero_Dates array of zero coupon curve dates for the treasury curve strictly ascending order
The first date of this array must be Valuation_Date
Govt_Zero_Rates array of continuously compounded zero coupon treasury rates in decimal form (e.g. six percent entered as 0.06) corresponding to Govt_Zero_Dates > 0
Swap_Zero_Dates array of zero coupon curve dates strictly ascending order
The first date of this array must be Valuation_Date
Swap_Zero_Rates array of continuously compounded zero coupon swap rates in decimal form (e.g. six percent entered as 0.06) corresponding to Swap_Zero_Dates > 0
Short_Rate_Vol annual standard deviation of the short rate of interest, in decimal form > 0
Reversion_Rate mean reversion rate of the short rate of interest, in decimal form >= 0
OAS parallel shift of the swap zero curve in decimal form
Precision the degree of precision required 3 to 80
(the higher the number, the more accurate the result, at least 50 is recommended)


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