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Pricing Caps/Floors

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Ramon Lozano

Pricing Caps/Floors

Hello,

        I am trying to price Vanilla Caps/Floors using the BlackCapFloorEngine. I am initializing the BlackCapFloorEngine using the third constructor:

BlackCapFloorEngine (const Handle< YieldTermStructure > &discountCurve, const Handle< OptionletVolatilityStructure > &vol)

My market vol data consists of ATM caplet volatilities. So the concrete class I am using for OptionletVolatilityStructure is the StrippedOptionletAdaptor class. Then for the argument of the StrippedOptionletAdaptor class, which is StrippedOptionletBase, I am using the StrippedOptionlet class ( i have posted the code fragment below )
Is this the correct class to use for my market data?

[code]
    boost::shared_ptr<StrippedOptionletBase> strippedOptionlet( new StrippedOptionlet(settDays,calendar, bdc, index,
                                                                                       capletDates,strikes,vols,dct));
    boost::shared_ptr<OptionletVolatilityStructure> strippedOptionletAdapter( new StrippedOptionletAdapter(strippedOptionlet) );
    capVolCurve = boost::shared_ptr<OptionletVolatilityStructure> ( strippedOptionletAdapter );
[/code]

Anyway, two of the arguments to the constructor or the StrippedOptionlet class is vector<Rate> strikes and vector<vector<Handle<Quote>> vols. My question is that since I only have ATM caplet vols, should the argument vector<Rate> Strikes only have a size of 1 ( corresponding to the ATM strike ) and the argument vector<vector<Handle<Quote>> vols be 1 X N vector of vols (where N is the number of caplet vols in my market data )?

Another question I have is that is there a simple war to price Vanilla Cap/Floors using the BlackCapFloorEngine if my market data consists of ATM caplet volatilities ( no smile )?

best regards

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