Interest Rate Derivatives Using Closed Form Solutions :: Interest-Rate Derivatives (Financial Derivatives Toolbox™)

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Interest Rate Derivatives Using Closed Form Solutions

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Pricing Caps and Floors Using the Black Option Model

Pricing Caps and Floors Using the Black Option Model

Caps and floors are contracts that allow the holder to be protected if interest rates rise or decrease. The Black model uses a forward price as an underlier in place of a spot price. The assumption is that the forward price at maturity of the option is log-normally distributed.

Closed-form solutions for pricing caps and floors using the Black model support the following tasks:

Task	Function
Price the interest rate caps using the Black option pricing model.	`capbyblk`
Price the interest rate floors using the Black option pricing model.	`floorbyblk`

Computing Prices and Sensitivities Using Interest-Rate Models

Graphical Representation of Trees

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