Deriscope

The Excel Derivatives Periscope

Coverage

Model[CapFloor]__Pricing_Method

Pricing Method refers to List of available pricing methods.
Available Pricing Method types:
<wb>Bachelier</wb>
Minimum required license: Basic
Assumes that the underlying forward rate F follows the Bachelier process so that it is normally distributed at any future time.
Concretely F is diffused as dF = σdw in its martingale measure.
The QuantLib engine used is the BachelierCapFloor in the interest rate case and the YoYInflationBachelierCapFloor in the inflation case.
<wb>Black</wb>
Assumes that the underlying forward rate F follows the Black process so that it is lognormally distributed at any future time.
Concretely F is diffused as dF = σFdw in its martingale measure, where σ may be time dependent.
The QuantLib engine used is the BlackCapFloor in the interest rate case and the YoYInflationBlackCapFloor in the inflation case.
<wb>Black Displaced</wb>
Minimum required license: Basic
Assumes that the underlying forward rate F follows the displaced Black process so that it is lognormally distributed with a horizontal shift at any future time.
Concretely F is diffused as d(F+θ) = σ(F+θ)dw in its martingale measure, which treats d(F+θ) as being always positive.
It follows that a positive θ results to an F at time T of which the lognormal distribution is shifted to the left by an amount equal to θ.
Note this model reduses to the Black model when θ = 0.
The QuantLib engine used is the BlackCapFloor with a non-trivial displacement amount in the interest rate case and the YoYInflationUnitDisplacedBlackCapFloor in the inflation case.