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Various Features of the Chooser Flexible Cap

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Author Info

  • Masamitsu Ohnishi

    ()
    (Graduate School of Economics, Osaka University)

  • Yasuhiro Tamba

    ()
    (Graduate School of Economics, Osaka University)

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    Abstract

    In this paper, we theoretically look into various features of a chooser flexible cap. The chooser flexible cap is a financial instrument written on an underlying market interest rate index, LIBOR (London Inter-Bank Offer Rate). The chooser flexible cap allows a right for a buyer to exercise a limited and pre-determined number of the interim period caplets in a multiple-period cap agreement. While the chooser flexible cap is more flexible and cheaper instrument than the normal cap, its pricing is more complicated than the cap's because of its flexibility. So it may take long time for its price calculation. We can use the features to cut down the calculation time. At the same time the option holder can use the features for exercise strategies.

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0420.pdf
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    Bibliographic Info

    Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 04-20.

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    Length: 23 pages
    Date of creation: Dec 2004
    Date of revision:
    Handle: RePEc:osk:wpaper:0420

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    Web page: http://www.econ.osaka-u.ac.jp/
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    Related research

    Keywords: chooser flexible cap; LIBOR; dynamic programming; exercise strategy.;

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