Financial Derivatives Toolbox™

floorbyhjm - Price floor instrument from HJM interest-rate tree

Syntax

[Price, PriceTree] = floorbyhjm(HJMTree, Strike, Settle, Maturity, 
Reset, Basis, Principal, Options)

Arguments

`HJMTree`	Forward-rate tree structure created by `hjmtree`.
`Strike`	Number of instruments (`NINST`)-by-`1` vector of rates at which the floor is exercised.
`Settle`	Settlement date. `NINST`-by-`1` vector of dates representing the settlement dates of the floor. The `Settle` date for every floor is set to the `ValuationDate` of the HJM tree. The floor argument `Settle` is ignored.
`Maturity`	`NINST`-by-`1` vector of dates representing the maturity dates of the floor.
`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) The notional principal amount. Default = `100`.
`Options`	(Optional) Derivatives pricing options structure created with `derivset`.

Description

[Price, PriceTree] = floorbyhjm(HJMTree, Strike, Settlement, Maturity, Reset, Basis, Principal, Options) computes the price of a floor instrument from an HJM tree.

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

PriceTree is the tree structure with values of the floor at each node.

Examples

Price a 3% floor instrument using an HJM forward-rate tree.

Load the file deriv.mat, which provides HJMTree. The HJMTree structure contains the time and forward-rate information needed to price the floor instrument.

load deriv.mat;

Set the required values. Other arguments will use defaults.

Strike = 0.03;
Settle = '01-Jan-2000';
Maturity = '01-Jan-2004';

Use floorbyhjm to compute the price of the floor instrument.

Price = floorbyhjm(HJMTree, Strike, Settle, Maturity)

Price =

  0.0486

floorbyhjm - Price floor instrument from HJM interest-rate tree

Syntax

Arguments

Description

Examples

See Also