Financial Derivatives Toolbox™

floatbybk

Price floating-rate note from Black-Karasinski interest-rate tree

Syntax

[Price, PriceTree] = floatbybk(BKTree, Spread, Settle, Maturity, Reset, Basis, Principal, Options)

Arguments

`BKTree`	Interest-rate tree structure created by `bktree`.
`Spread`	Number of instruments (`NINST`)-by-`1` vector of number of basis points over the reference rate.
`Settle`	Settlement dates. `NINST`-by-`1` vector of dates representing the settlement dates of the floating-rate note.
`Maturity`	`NINST`-by-`1` vector of dates representing the maturity dates of the floating-rate note.
`Reset`	(Optional) `NINST`-by-`1` vector representing the frequency of payments per year. Default = `1`.
`Basis`	(Optional) Day-count basis of the instrument. A vector of integers. 0 = actual/actual (default) 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 (ISMA) 9 = actual/360 (ISMA) 10 = actual/365 (ISMA) 11 = 30/360E (ISMA) 12 = actual/365 (ISDA)
`Principal`	(Optional) `NINST`-by-`1` vector of the notional principal amount. Default = `100`.
`Options`	(Optional) Derivatives pricing options structure created with `derivset`.

Description

[Price, PriceTree] = floatbybk(BKTree, Spread,Settle, Maturity, Reset, Basis, Principal, Options) computes the price of a floating-rate note from a Black-Karasinski tree.

Price is an NINST-by-1 vector of expected prices of the floating-rate note at time 0.

PriceTree is a structure of trees containing vectors of instrument prices and accrued interest, and a vector of observation times for each node.

PriceTree.PTree contains the clean prices.

PriceTree.AITree contains the accrued interest.

PriceTree.tObs contains the observation times.

The Settle date for every floating-rate note is set to the ValuationDate of the BK tree. The floating-rate note argument Settle is ignored.

Examples

Price a 20 basis point floating-rate note using a Black-Karasinski interest-rate tree.

Load the file deriv.mat, which provides BKTree. The BKTree structure contains the time and interest-rate information needed to price the note.

load deriv.mat;

Set the required values. Other arguments will use defaults.

Spread = 20;
Settle = '01-Jan-2005';
Maturity = '01-Jan-2006';

Use floatbybk to compute the price of the note.

Price = floatbybk(BKTree, Spread, Settle, Maturity)

Price =

  100.3825

floatbybk

Syntax

Arguments

Description

Examples

See Also