Posted by
Luigi Ballabio on
URL: http://quantlib.414.s1.nabble.com/Re-Floating-RateBond-missing-caplet-volatility-tp5256p5257.html
On Thu, 2007-11-22 at 08:11 -0800, amandine vincotte wrote:
> I am defining a vanilla floating rate bond ( so the constructor has empty caps and floors vectors as below).
> When I set the "In arrears=false", I get a price for the FRN.
>
> But when I set " in arrears=true" ,like most of the FRNs are, I get this error " missing caplet volatility".
>
> I dont understand this error because I have defined a plain vanilla FRN.
When the coupon is fixed in arrears, there's a convexity adjustment to
be applied to the index fixing which is forecast on the risk-free curve.
The adjustment depends on the caplet volatility, so one is required. If
you're not interested in the adjustment (you probably should, though)
you can pass a constant volatility equal to 0.
Luigi
--
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