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Various Features of the Chooser Flexible Cap

Author

Listed:
  • Masamitsu Ohnishi

    (Graduate School of Economics, Osaka University)

  • Yasuhiro Tamba

    (Graduate School of Economics, Osaka University)

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.

Suggested Citation

  • Masamitsu Ohnishi & Yasuhiro Tamba, 2004. "Various Features of the Chooser Flexible Cap," Discussion Papers in Economics and Business 04-20, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:0420
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0420.pdf
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    More about this item

    Keywords

    chooser flexible cap; LIBOR; dynamic programming; exercise strategy.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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