Analytic Cap/Floor Pricing Engine

[Aurelien Chanudet-2]

Hi,

I'm uncomfortable with the way the analytic cap/floor
pricing engine (which a Hull-White model) handles
caplets that have fixed but whose cash-flow hasn't
been paid yet (that is, when time zero falls after the
beginning of the capping period but before the end of
the capping period). As I see it, the price of the
caplet in this case is simply the present value of a
known (deterministic) payoff. However, QuantLib
apparently wants to apply a Black-Scholes like pricing
formula which fails to work in this case. Am I missing
something ?

Thanks,
Aurelien


       

       
               
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[Luigi Ballabio]

On 01/14/05 10:22:46, Aurelien Chanudet wrote:
> I'm uncomfortable with the way the analytic cap/floor
> pricing engine (which a Hull-White model) handles
> caplets that have fixed but whose cash-flow hasn't
> been paid yet.

Aurelien,
        you're right, those caplet (and I suspect, also caplet whose cash-
flow was already paid) are priced incorrectly. Are you willing to provide a  
patch?

Later,
        Luigi