Interest-Rate Derivatives Using Closed-Form Solutions

Pricing Caps and Floors Using the Black Option Model

Caps and floors are contracts that allow the holder to be protected if interest rates rise or decrease. The Black model uses a forward price as an underlier in place of a spot price. The assumption is that the forward price at maturity of the option is log-normally distributed.

Closed-form solutions for pricing caps and floors using the Black model support the following tasks:

Task	Function
Price the interest rate caps using the Black option pricing model.	capbyblk For examples, see: Price a Cap Using the Black Option Pricing Model Price a Cap Using a Different Curve to Generate the Future Forward Rates Compute the Price of Two Amortizing Caps Using the Black Model Price a Cap Using the Shifted Black Model
Price the interest rate floors using the Black option pricing model.	floorbyblk For examples, see: Price a Floor Using the Black Option Pricing Model Price a Floor Using a Different Curve to Generate the Future Forward Rates Compute the Price of an Amortizing Floor Using the Black Model Price a Floor Using the Shifted Black Model