<t>I’m working on an implementation of In-Arrears-Libor options (Caps, floors etc.) To do that I’m using the convexity adjustment specified in Brigo & Mercuri, where the Black ’76 model is used to model the forward rate. The implementation is done quit easy, but my problem is what volatility to ...

That is the time dependent parameter in Hull & White (Vasicek), also called theta

<t>Cemil, I appreciate your help and I know that I have to be careful. I’m trying to implement a lot of different DayCount convention, and it is hard to find any literature, with some good examples.If it was a money market paper with the same kind of cashflow, would I calculate the accrued interest ...

Let’s say the bond has coupon payments 1-jan-2006, 1-apr-2006, 1-jnu-2006 ... until 1-1-2010 and the couponrate is 5%.

<t>For the Accrued interest I’m only interested in the yearfrac part. I assumed that the coupon frequency is quarterly, so according to the act/act ISMA the yearfrac should be calculated as(10-feb-2006 - 1-jan-2006 ) / ((1-apr-2006 – 1-jan-2006) * PayFreq) = 40 / (90*4) = 0,111111The thing I wasn’t ...

<t>I have some problems calculation year fraction and Accrued Interest, and how business day adjustment should be taken into account.Let’s take the DayCount problem first. I want to calculate the yearfrac for a money market paper from 1-jan-2006 to 1-apr-2006, using act/360. Will I have to adjust to...

<t>I’m working with extended one-factor affine models solved in finite difference setup. So far I’m able to calibrate the model to Caps and Swaption volatility and after that calibrate it to the current yield curve structure to get a time de-pendent eps vector I add to the theta parameter.If I use e...

Thank you very much it helped me a lot, although I have one more question. Do I calculate Accrued Interest in the same way in the Money market as in the Bond Marked?

<t>I have some problems understanding the difference between Day Count Basis in the Money market and the Bond Market. If we take a Swap I know that in the Money Market the floating leg of a swap is using a Act/360, which mean I calculate the year fraction of a period and the year fraction * Fix-ing-...

<t>I’m trying to price a generic cap with 3 month periods and different strikerates.Since I only have a range of caps with 6 months periods I have bootstrapped them for different strikerates, which gives me a spot vol curve for each strike rate. I would like to use these vol curves to price the gene...