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Price floor instrument from Black-Karasinski interest-rate tree


[Price, PriceTree] = floorbybk(BKTree, Strike, Settle, Maturity,
Reset, Basis, Principal, Options)



Interest-rate tree structure created by bktree.


Number of instruments (NINST-by-1) vector of rates at which the floor is exercised.


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 BK tree. The floor argument Settle is ignored.


NINST-by-1 vector of dates representing the maturity dates of the floor.


(Optional) NINST-by-1 vector representing the frequency of payments per year. Default = 1.


(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 (BMA)

  • 5 = 30/360 (ISDA)

  • 6 = 30/360 (European)

  • 7 = actual/365 (Japanese)

  • 8 = actual/actual (ICMA)

  • 9 = actual/360 (ICMA)

  • 10 = actual/365 (ICMA)

  • 11 = 30/360E (ICMA)

  • 12 = actual/365 (ISDA)

  • 13 = BUS/252

For more information, see basis.


(Optional) NINST-by-1 of notional principal amounts or NINST-by-1 cell array where each element is a NumDates-by-2 cell array where the first column is dates and the second column is associated principal amount. The date indicates the last day that the principal value is valid. Default is 100.


(Optional) Derivatives pricing options structure created with derivset.


[Price, PriceTree] = floorbybk(BKTree, Strike, Settlement, Maturity, Reset, Basis, Principal, Options) computes the price of a floor instrument from a Black-Karasinski 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.

    Note:   Use the optional name-value pair argument, Principal, to pass a schedule to compute price for an amortizing floor.


collapse all

Load the file deriv.mat, which provides BKTree. The BKTree structure contains the time and interest 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-2004';
Maturity = '01-Jan-2007';

Use floorbybk to compute the price of the floor instrument.

Price = floorbybk(BKTree, Strike, Settle, Maturity)
Price =


Load deriv.mat to specify the BKTree and then define the floor instrument.

load deriv.mat;
Settle = '01-Jan-2004';
Maturity = '01-Jan-2008';
Strike = 0.045;
Reset = 1;
Principal ={{'01-Jan-2005' 100;'01-Jan-2006' 60;'01-Jan-2007' 30;'01-Jan-2008' 30};...

Price the amortizing and vanilla floors.

Basis = 1;
Price = floorbybk(BKTree, Strike, Settle, Maturity, Reset, Basis, Principal)
Price =


Related Examples

See Also

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Introduced before R2006a

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