In Fairways Debt, before booking a transaction, you can first price and simulate their schedules.
Caps and floors provide guarantees to the issuer of a floating rate that the coupon payment each period will be no higher or lower than a certain amount.
The coupon rate will be capped or floored at the strike rate.
Each payment date, the cap or floor pays the difference, if positive, between the floating rate and the cap or floor rate, multiplied by the notional amount of the principal or by value, divided by the annual payment frequency.
A cap or floor actually consists of a series of options, also known as caplets or floorlets. Each caplet or floorlet successively ensures the buyer protection for a single payment period.
Prerequisites
- Enable the Pricer application for the customer account or the organization (contact your Finance Active consultant)
- Enable the Vanilla Cap/Floor pricer (contact your Finance Active consultant)
- Enable the relevant currencies (contact your Finance Active consultant)
Navigate to the Pricer Application
- Log in to your Fairways Debt account, e.g. https://login.financeactive.eu.
- Select a customer account.
- Navigate to Applications > Pricer.
Price a Vanilla Cap or Floor
- Click Vanilla Cap/Floor.
- Complete the form with all relevant details.
Note: Fields marked with an asterisk * are mandatory.
|
Field |
Description |
|---|---|
|
Market Date |
Date on which the option is priced. |
|
Nominal |
Notional to invest in the option, and the currency of the option and the underlying. Note: The reference interest rate (IBOR) is selected according to that currency. |
|
Start Date |
Unadjusted start date of the first caplet or floorlet. |
|
End Date |
Unadjusted end date of the transaction. |
|
Notional or nominal depreciation over the life of the option. Note: Extra fields may display beside depending on the selected mode. |
|
|
Rate |
Note: This field only displays for the progressive amortization mode. Progressivity rate. |
|
Frequency |
Note: This field only displays for the straight line, progressive and custom amortization modes. Amortization frequency. |
|
Field |
Description |
|---|---|
|
Option |
Transaction type. |
|
Strike |
Interest rate level at which the caplet or floorlet is active, in percentage. |
|
Frequency |
Frequency of the interests perceived or paid. This frequency determines the tenor of the index (3 months, 6 months, etc.). |
|
Day Count |
Computes the day fraction of an interest accrual period. |
|
Fixing Type |
|
|
Fixing Offset |
Number of days to move from the fixing type selected, can be earlier or later, e.g.:
|
|
Field |
Description |
|---|---|
|
Roll Convention |
Note: The field value displays depending on the selected end date and stub. Date rolling convention. |
|
Stub |
Defines whether the last period should be a short or long stub when it does not match the selected frequency. |
|
Calendar |
Calendars with banking days and holidays of a specific city work with adjustments to provide an accurate schedule. |
|
Adjustment mode for the payment date. |
|
|
First Regular Start Date |
Note: This field only displays for the mixed stub. Start date of the stub. |
|
Last Regular Start Date |
Note: This field only displays for the mixed stub. End date of the stub. |
- Click Apply.
The pricing results display.
Amortization
|
Mode |
Description |
|---|---|
|
Bullet |
No depreciation during the lifetime of the transaction. Cumulative depreciations are counted at the end of the transaction term. |
|
Linear |
Constant depreciation. |
|
Progressive |
The rate is progressive. |
|
Different values apply to each amortization. |
Custom Amortization
- Click Edit.
- Double-click the relevant payback amount fields and enter their amounts.
- Click Save.
