September 18th, 2006, 2:27 am
Thanks manolom, I think I understand it now, that pdf was quite useful. I have also done much further reading. But one more question to confirm.Do I need convexity adjustments in this case?Suppose I was pricing a capped floating rate note, whose floating rate were coupons paid semiannually based on the 6month LIBOR as at 6 months ago.Would it be correct to price this by calculating the coupons using forward rates derived from the zero curve without convexity adjustments. And then discount these payments with the zero curve. I assume that a convexity adjustment isn't need as the coupons are paid in line with the natural time lag of the 6month LIBOR. And of course since it is a capped FRN i'll need to include the appropriate caplets in the pricing as well. Thanks again guys!
Last edited by
human909 on September 17th, 2006, 10:00 pm, edited 1 time in total.