Set the global evaluation date. This date is taken as the reference date for all yield curves and benchmark rates unless another date is specified explicitly.
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The nominal amount is 100.
Create a 6-month EURIBOR benchmark rate with a forecasted rate of 5%. No history is available for this rate.
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Construct a discount interest rate curve.
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Construct floating-leg payments.
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Construct an interest rate cap with a fixed cap rate of 7% for all payments in the floating leg.
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Price these instruments using the Black model with a discount rate of 5% and a volatility of 20%, and verify that the price of the cap is equal to the sum of the prices of the other two instruments.
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| (11) |
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| (13) |