Hi all,I got a new portfolio recently and inherited a pretty ugly structure with it. The security in question works similar to a shout option on interest rates. In the beginning of the year a reference swap rate is determined and the investor (aka me) has a year to "shout" in oder to lock in a coupon for that year. The coupon is then calculated as the absolute difference between the reference swap rate, the swap rate a the time of the shout and a gearing factor; roughly like this: . In case there is no shout the last swap rate in the time frame is used.This game goes on every year until maturity of the security (I'm reluctant to call it a bond or a derivative, really).The security also has a restructuring option, so if and when an investor is fed up with tracking the swap rate on a regular basis he or she can restructure the security into a normal coupon bearing senior unsecured bond.And that is why I need to find some method to valuate this thing as I don't want to get screwed too much by the issuing bank in case I want to restructure. Also the shout option clearly has some sensitivity upon volatility of the underlying swap rate and that might make a restructuring at the moment particularily interesting asthe implied volatility levels are pretty high at the moment.Is anybody aware of some papers detailing the valuation of some beast like this? I found some regarding shout options, but usually those are looking at equity only and I would be more confortable with one a bit closer to the matter at hand.Thanks in advance for any help or hints in the right direction...

the t(shout(i)) is obv. meant as r(t(shout)i)... sry about that

can't you just use the valuation methods in the equity shout papers but just use your favorite interest rate model instead of BS ?

Google for Vol Bond

great. thanks!