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BuffaloFan32
Topic Author
Posts: 10
Joined: July 14th, 2016, 10:53 pm

Pricing an interest rate floor

March 20th, 2020, 11:11 pm

I am trying to figure out how the value of my strip of interest rate floorlets might change over the next few years.  I already have a crude Excel based Monte Carlo simulator that will generate lots of yield curves as it moves through time.  I have used it for projecting the market value of a vanilla interest rate swap or a cross currency swap but now I would like to include a series of floorlets in the evaluation.  The floor is struck at 0% so BS won't work.  I have been trying to implement the Bachelier method shown in this article:

Interest Rate Models and Negative Rates 

but my valuations are way off from the strip I priced in Bloomberg.  Please, see the attached document for a copy of my work.  Does anybody have a simple tutorial of how to implement this pricing method (preferably in Excel)?
BBG Floor Test.xlsx
(111.13 KiB) Downloaded 116 times
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