Class VolatilityOvernightInArrearsCapletFloorletPeriodPricer

  • public class VolatilityOvernightInArrearsCapletFloorletPeriodPricer
    extends Object
    Pricer for overnight in-arrears caplet/floorlet based on volatilities.

    The pricing methodologies are defined in individual implementations of the volatilities, IborCapletFloorletVolatilities.

    The volatilities are stored in IborCapletFloorletVolatilities, it should be understood as "TermRateCapletFloorletVolatilities".

    The pricing is based on "interpolated volatilities" for the compounded in-arrears rates, in particular Section 6.3 of the reference below. Reference: A. Lyashenko and F. Mercurio. Looking forward to backward-looking rates: A modeling frame- work for term rates replacing LIBOR. SSRN Working Paper 3330240, March 2019.

    • Constructor Detail

      • VolatilityOvernightInArrearsCapletFloorletPeriodPricer

        public VolatilityOvernightInArrearsCapletFloorletPeriodPricer()
    • Method Detail

      • adjustedVolatility

        public double adjustedVolatility​(double startTime,
                                         double endTime,
                                         double volatility)
        Volatility adjusted for the decrease of forward rate volatility in the composition period.
        startTime - the start time
        endTime - the end time
        volatility - the volatility
        the adjusted volatility