CapeTools Bond Options
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In total there are 7 functions present within the CapeTools Bond Options category of functions.
General Description
Functions for constructing Bond Option Objects
There are two different functions for constructing Bond Option objects within this category. One that takes a repo curve (see CapeTools Repo Curves) and the other that takes a flat repo rate.
The functions presented here price European Bond Options. You will not generate accurate results if your underlying Bond object has any of the following features :
- Amortised Notionals
- Step Up/Down Coupon rates
This is because a Cox-Ross-Rubinstein Binomial Tree Engine is used to price the option and only the Bond Price is used from the Bond Object. The pricing algorithm here does not keep track of amortised/coupon values from cashflow to cashflow.
In addition, you cannot use this function if you require Bermudan type option prices.
In order to overcome these limitations, you need to use the Bond Option functions present within the [TOPIC]CapeTools IREngineOptions[TOPIC] category of functions. The Bond Option functions here utilize term-structure models.
Function list.
- QBSBondOption - Creates a BondOption object that will price the option via a Black Scholes methodology.
- QBSBondOption2 - Creates a BondOption object that will price the option via a Black Scholes methodology.
- QBondOptPriceVol - Returns the BondOption's Price Volatility.
- QBondOptYieldVol - Returns the BondOption's Yield Volatility.
- QPriceBondOption - Prices a Bond option given a BondOption object.
- QTreeBondOption - Creates a BondOption object that will price the option via a Tree.
- QTreeBondOption2 - Creates a BondOption object that will price the option via a Tree.
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