Question on Caps/Floors pricing on InArrear cashflows.

Posted by Toyin Akin on Oct 04, 2005; 12:04am
URL: http://quantlib.414.s1.nabble.com/isTimeDependent-tp4060p4065.html

Hi all,

Within Quantlib you can create an array of cashflows which can then be
passed into the CapFloor constructor.

My question is whether the pricing logic within the CapFloor class is
correct for InArrear cashflows?

The CapFloor class takes as it's exercise date for all the
caplet's/floorlet's the fixing date of the coupon.

Under a UpFrontIndexedCoupon this would be settleDays before the start date
of the period.
Under an Inarrearindexedcoupon this would be settleDays before the end date
of the period.

Thus when pricing a caplet/floorlet which is based on an
Inarrearindexedcoupon, should the
exercise date still be settleDays before the start date of the period?

My guess is that the exercise date should be settleDays before the start
date of the period.

Best Regards,
Toyin Akin.