lballabio
Capfloor enhancement for risk free rate
A straightforward approach for valuing backward-looking cap floors, such as those based on SOFR, SONIA, etc., involves utilizing the accrual period's end date to derive volatility from the volatility surface. This method aligns with the practices of numerous vendors, including ICAP, in the valuation of risk-free cap floors. My proposed solution offers a rapid means to adapt IBOR-type floating coupon mechanisms for pricing products with daily compounding and backward-looking cap floors. While it may not be the ultimate solution, it effectively conforms to industry standards.
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coverage: 72.495% (-0.002%) from 72.497% when pulling a5706f4725131217f2df5c401fb522d5de80cf46 on lennieye:feature/capfloor_enhancement into 7c12452aa18f08f873d926b6a9f9f87eaba1a0b0 on lballabio:master.
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Hi—apologies for dropping out. What should we do here? I'd remove the backwardLooking bool and default to backwards if the index is an overnight one and forwards otherwise. Would that look ok for you?
Hi—apologies for dropping out. What should we do here? I'd remove the backwardLooking bool and default to backwards if the index is an overnight one and forwards otherwise. Would that look ok for you?
I apologize for the delayed response. I believe that users can achieve the same purpose by carefully setting the isInArrears attribute in FloatingRateCoupon. There seems to be no need for this PR. Let's go ahead and close it.