HW_CMT_Cap() and HW_CMT_Floor() functions

HW_CMT_Cap() and HW_CMT_Floor() functions

HW_CMT_Cap(argument list…)

HW_CMT_Floor(argument list…)

These function return the price of a cap or floor. However, the index rate is a CMT or a CMS rate, unlike a regular cap or floor. The CMS cap/floor can be valued by making the Treasury zero curve input identical to the swap curve. A proprietary technique is used to generate the valuation, within the framework of the Hull-White model. The function uses the following arguments:

Argument	Description	Restrictions
Valuation_Date	valuation date (e.g. today)	valid Excel date number
Strike	option strike rate in decimal form (e.g. six percent entered as 0.06)	> 0
Last_Reset_Rate	previous CMT rate in decimal form, used for valuing seasoned caplets/floorlets	> 0
Cap/Floor Start_Date	start date of cap/floor	valid Excel date number
TIM	term of the structure in months	> 0
CMT_Rate_term_months	term of the rate underlying the floating (CMT) index	> 0
CMT_Rate_freq	frequency of the CMT indexing rate	1, 2, 4, or 12
CMT_Year_Basis	year basis for the CMT rate	360 or 365
CMT_Cap/Floor_freq	the frequency of the cap or floor	1, 2, 4, or 12
Holidays	array of holiday dates	valid Excel date numbers strictly ascending order
Govt_Zero_Dates	array of zero coupon curve dates for the treasury curve	strictly ascending order The first date of this array must be Valuation_Date
Govt_Zero_Rates	array of continuously compounded zero coupon treasury rates in decimal form (e.g. six percent entered as 0.06) corresponding to Govt_Zero_Dates	> 0
Swap_Zero_Dates	array of zero coupon curve dates	strictly ascending order The first date of this array must be Valuation_Date
Swap_Zero_Rates	array of continuously compounded zero coupon swap rates in decimal form (e.g. six percent entered as 0.06) corresponding to Swap_Zero_Dates	> 0
Short_Rate_Vol	annual standard deviation of the short rate of interest, in decimal form	> 0
Reversion_Rate	mean reversion rate of the short rate of interest, in decimal form	>= 0
OAS	parallel shift of the swap zero curve in decimal form
Precision	the degree of precision required	3 to 80 (the higher the number, the more accurate the result, at least 50 is recommended)