floorbyhjm - Price floor instrument from Heath-Jarrow-Morton 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 (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/actual (ISDA) 13 = BUS/252 For more information, see basis.
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

See Also

capbyhjm | cfbyhjm | hjmtree | swapbyhjm

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