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qetuo18
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Joined: April 18th, 2018, 2:12 am

CAP pricing using Black Model on Matlab

April 18th, 2018, 2:31 am

Hello,

I have a doubt, hopefully you can help me. I'm pricing a 3MLibor CAP using Black model with Matlab software. I have the ZERO 3MLibor Swap Curve but i'm not sure if it's right to use this curve as an input for matlab because Matlab uses it to generate future forward rates and i think that a Swap Curve already inform about market expectations over the Libor curve. Maybe what i have to do is pricing the CAP in excel using the Swap curve directly as forward rates in Black model.¿Which curve it is rigth to use in this case?

Thanks for your answers.

Diego.
 
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bearish
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Joined: February 3rd, 2011, 2:19 pm

Re: CAP pricing using Black Model on Matlab

April 18th, 2018, 10:34 am

The answer is probably that you want to use the zero curve, but it really depends on what inputs your software calls for. Merely referring to Matlab and Excel doesn’t really tell us much. And it is cap, not CAP.
 
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qetuo18
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Joined: April 18th, 2018, 2:12 am

Re: CAP pricing using Black Model on Matlab

April 18th, 2018, 2:30 pm

Hi, thanks for the response. Matlab needs a curve, vol, strike, maturity and reset frecuency. My doubt comes from the fact that the swap curve are 50pb (average) over the libor level. This seems a "forward curve" because shows the market expectations about libor. I'm wrong?
 
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Martinghoul
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Joined: July 18th, 2006, 5:49 am

Re: CAP pricing using Black Model on Matlab

April 18th, 2018, 7:55 pm

What is in the specification of the pricing function?  Does it tell you what curve it expects as an input and in what specific format?