Floor

Floor instrument object

Since R2020a

Description

Create and price a Floor instrument object for one of more Floor instruments using this workflow:

1. Use fininstrument to create a Floor instrument object for one of more Floor instruments.

2. Use finmodel to specify a HullWhite, BlackKarasinski, BlackDermanToy, Black, Normal, BraceGatarekMusiela, SABRBraceGatarekMusiela, CoxIngersollRoss, or LinearGaussian2F model for the Floor instrument object.

3. Choose a pricing method.

   • When using a HullWhite, BlackKarasinski, BlackDermanToy, Black, CoxIngersollRoss, or Normal model, use finpricer for pricing one or more Floor instruments and specify:

     • A Normal pricer when using a Normal model.

     • A Black pricer when using a Black model.

     • A HullWhite pricer when using a HullWhite model.

     • An IRTree pricer when using a BlackKarasinski, CoxIngersollRoss, or BlackDermanToy model.

   • When using a HullWhite, BlackKarasinski, BraceGatarekMusiela, SABRBraceGatarekMusiela, or LinearGaussian2F model, use finpricer to specify an IRMonteCarlo pricing method for one or more Floor instruments.

For more information on this workflow, see Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments.

For more information on the available models and pricing methods for a Floor instrument, see Choose Instruments, Models, and Pricers.

Creation

Syntax

FloorOpt = fininstrument(InstrumentType,'Strike',strike_value,'Maturity',maturity_date)

FloorOpt = fininstrument(___,Name,Value)

Description

FloorOpt = fininstrument(InstrumentType,'Strike',strike_value,'Maturity',maturity_date) creates a Floor object for one of more Floor instruments by specifying InstrumentType and sets the properties for the required name-value pair argumentsStrike and Maturity.

The Floor instrument supports vanilla and amortizing floors.

FloorOpt = fininstrument(___,Name,Value) sets optional properties using additional name-value pairs in addition to the required arguments in the previous syntax. For example, FloorOpt = fininstrument("floor",'Strike',0.35,'Maturity',datetime(2019,1,30),'Reset',4,'Principal',100,'ResetOffset',1,'Basis',4,'DaycountAdjustedCashFlow',true,'BusinessDayConvention',"follow",'ProjectionCurve',ratecurve_object,'Name',"floor_option") creates a Floor instrument with a strike of 100 and a maturity of January 30, 2019. You can specify multiple name-value pair arguments.

Input Arguments

InstrumentType — Instrument type

string with value "Floor" | string array with values of "Floor" | character vector with value 'Floor' | cell array of character vectors with values of 'Floor'

Instrument type, specified as a string with the value of "Floor", a character vector with the value of 'Floor', an NINST-by-1 string array with values of "Floor", or an NINST-by-1 cell array of character vectors with values of 'Floor'.

Data Types: char | cell | string

Name-Value Arguments

Specify required and optional pairs of arguments as Name1=Value1,...,NameN=ValueN, where Name is the argument name and Value is the corresponding value. Name-value arguments must appear after other arguments, but the order of the pairs does not matter.

Before R2021a, use commas to separate each name and value, and enclose Name in quotes.

Example: FloorOpt = fininstrument("floor",'Strike',0.35,'Maturity',datetime(2019,1,30),'Reset',4,'Principal',100,'ResetOffset',1,'Basis',4,'DaycountAdjustedCashFlow',true,'BusinessDayConvention',"follow",'ProjectionCurve',ratecurve_object,'Name',"floor_option")

Required Floor Name-Value Pair Arguments

Strike — Option strike price value

scalar nonnegative decimal | vector of nonnegative decimals

Option strike price value, specified as the comma-separated pair consisting of 'Strike' and a scalar nonnegative decimal or an NINST-by-1 vector of nonnegative decimals.

Data Types: double

Maturity — Floor maturity date

datetime array | string array | date character vector

Floor maturity date, specified as the comma-separated pair consisting of 'ExerciseDate' and a scalar or an NINST-by-1 vector using a datetime array, string array, or date character vectors.

To support existing code, Floor also accepts serial date numbers as inputs, but they are not recommended.

If you use date character vectors or strings, the format must be recognizable by datetime because the Maturity property is stored as a datetime.

Optional Floor Name-Value Pair Arguments

Reset — Reset frequency payments per year

1 (default) | scalar numeric with value of 0, 1, 2, 3, 4, 6, or 12 | numeric vector with values of 0, 1, 2, 3, 4, 6, or 12

Reset frequency payments per year, specified as the comma-separated pair consisting of 'Reset' and a scalar numeric or an NINST-by-1 numeric vector.

Data Types: double

Basis — Day count basis

0 (actual/actual) (default) | scalar integer from 0 to 13 | vector of integers from 0 to 13

Day count basis, specified as the comma-separated pair consisting of 'Basis' and a scalar integer or an NINST-by-1 vector of integers with the following values:

• 0 — actual/actual

• 1 — 30/360 (SIA)

• 2 — actual/360

• 3 — actual/365

• 4 — 30/360 (PSA)

• 5 — 30/360 (ISDA)

• 6 — 30/360 (European)

• 7 — actual/365 (Japanese)

• 8 — actual/actual (ICMA)

• 9 — actual/360 (ICMA)

• 10 — actual/365 (ICMA)

• 11 — 30/360E (ICMA)

• 12 — actual/365 (ISDA)

• 13 — BUS/252

For more information, see Basis.

Data Types: double

Principal — Principal amount or principal value schedule

100 (default) | scalar numeric | numeric vector | timetable

Principal amount or principal value schedule, specified as the comma-separated pair consisting of 'Principal' and a scalar numeric or an NINST-by-1 numeric vector or a timetable.

Principal accepts a timetable, where the first column is dates and the second column is its associated principal value. The date indicates the last day that the principal value is valid.

Note

If you are creating one or more Floor instruments and use a timetable, the timetable specification applies to all of the Floor instruments. Principal does not accept an NINST-by-1 cell array of timetables as input.

Data Types: double | timetable

ResetOffset — Lag in rate setting

0 (default) | scalar numeric | numeric vector

Lag in rate setting, specified as the comma-separated pair consisting of 'ResetOffset' and a scalar numeric or an NINST-by-1 numeric vector.

Data Types: double

DaycountAdjustedCashFlow — Flag to adjust cash flows based on actual period day count

false (default) | scalar logical value of true or false | vector of logical values of true or false

Flag to adjust cash flows based on actual period day count, specified as the comma-separated pair consisting of 'DaycountAdjustedCashFlow' and a scalar logical or an NINST-by-1 vector of logicals with values of true or false.

Data Types: logical

BusinessDayConvention — Business day conventions

"actual" (default) | string | string array | character vector | cell array of character vectors

Business day conventions, specified as the comma-separated pair consisting of 'BusinessDayConvention' and a scalar string or character vector or an NINST-by-1 cell array of character vector or string array for a business day convention. The selection for business day convention determines how nonbusiness days are treated. Nonbusiness days are defined as weekends plus any other date that businesses are not open (for example, statutory holidays). Values are:

• "actual" — Nonbusiness days are effectively ignored. Cash flows that fall on non-business days are assumed to be distributed on the actual date.

• "follow" — Cash flows that fall on a nonbusiness day are assumed to be distributed on the following business day.

• "modifiedfollow" — Cash flows that fall on a nonbusiness day are assumed to be distributed on the following business day. However, if the following business day is in a different month, the previous business day is adopted instead.

• "previous" — Cash flows that fall on a nonbusiness day are assumed to be distributed on the previous business day.

• "modifiedprevious" — Cash flows that fall on a nonbusiness day are assumed to be distributed on the previous business day. However, if the previous business day is in a different month, the following business day is adopted instead.

Data Types: char | cell | string

Holidays — Holidays used in computing business days

NaT (default) | datetime array | string array | date character vector

Holidays used in computing business days, specified as the comma-separated pair consisting of 'Holidays' and dates using an NINST-by-1 vector of a datetime array, string array, or date character vectors. For example:

H = holidays(datetime('today'),datetime(2025,12,15));
FloorOpt = fininstrument("floor",'Strike',100,'Maturity',datetime(2025,12,15),'Holidays',H)

To support existing code, Floor also accepts serial date numbers as inputs, but they are not recommended.

ProjectionCurve — Rate curve used in generating future cash flows

ratecurve.empty (default) | ratecurve object | vector of ratecurve objects

Rate curve used in projecting the future cash flows, specified as the comma-separated pair consisting of 'ProjectionCurve' and a scalar ratecurve object or an NINST-by-1 vector of ratecurve objects. This object is created using ratecurve. Use this optional input if the forward curve is different from the discount curve.

Data Types: object

Name — User-defined name for instrument

" " (default) | string | string array | character vector | cell array of character vectors

User-defined name for one of more instruments, specified as the comma-separated pair consisting of 'Name' and a scalar string or character vector or an NINST-by-1 cell array of character vectors or string array.

Data Types: char | cell | string

Properties

Strike — Option strike price value

scalar nonnegative | vector of nonnegative values

Option strike price value, returned as a scalar nonnegative numeric or an NINST-by-1 vector of nonnegative values.

Data Types: double

Maturity — Floor maturity date

scalar datetime | vector of datetimes

Floor maturity date, returned as a scalar datetime or an NINST-by-1 vector of datetimes.

Data Types: datetime

Reset — Reset frequency payments per year

1 (default) | scalar numeric | numeric vector

Reset frequency payments per year, returned as a scalar numeric or an NINST-by-1 numeric vector.

Data Types: double

Basis — Day count basis

0 (actual/actual) (default) | scalar integer from 0 to 13 | vector of integers from 0 to 13

Day count basis, returned as a scalar integer or an NINST-by-1 vector of integers.

Data Types: double

Principal — Principal amount or principal value schedule

100 (default) | scalar numeric | numeric vector | timetable

Principal amount or principal value schedule, returned as a scalar numeric or an NINST-by-1 numeric vector for principal amount or a timetable for a principal value schedule.

Data Types: double | timetable

ResetOffset — Lag in rate setting

0 (default) | scalar numeric | numeric vector

Lag in rate setting, returned as a scalar numeric or an NINST-by-1 numeric vector.

Data Types: double

DaycountAdjustedCashFlow — Flag to adjust cash flows based on actual period day count

false (default) | scalar logical value of true or false | vector of logical values of true or false

Flag to adjust cash flows based on actual period day count, returned as a scalar logical or an NINST-by-1 vector of logical values with values of true or false.

Data Types: logical

BusinessDayConvention — Business day conventions

"actual" (default) | string | string array

Business day conventions, returned as a scalar string or an NINST-by-1 string array.

Data Types: string

Holidays — Holidays used in computing business days

NaT (default) | datetimes

Holidays used in computing business days, returned as an NINST-by-1 vector of datetimes.

Data Types: datetime

ProjectionCurve — Rate curve used in generating future cash flows

ratecurve.empty (default) | scalar ratecurve object | vector of ratecurve objects

Rate curve used in projecting the future cash flows, returned as a scalar ratecurve object or an NINST-by-1 vector of ratecurve objects.

Data Types: object

Name — User-defined name for instrument

" " (default) | string | string array

User-defined name for the instrument, returned as a scalar string or an NINST-by-1 string array.

Data Types: string

Examples

Price Vanilla Floor Instrument Using Black Model and Black Pricer

This example shows the workflow to price a vanilla Floor instrument when you use a Black model and a Black pricing method.

Create ratecurve Object

Create a ratecurve object using ratecurve for the underlying interest-rate curve for the floor instrument.

Settle = datetime(2018,9,15);
Type = 'zero';
ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]';
ZeroDates = Settle + ZeroTimes;
 
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)

myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [10x1 datetime]
                Rates: [10x1 double]
               Settle: 15-Sep-2018
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create Floor Instrument Object

Use fininstrument to create a Floor instrument object.

FloorOpt = fininstrument("Floor",'Maturity',datetime(2022,9,15),'Strike',0.03,'ProjectionCurve',myRC)

FloorOpt = 
  Floor with properties:

                      Strike: 0.0300
                    Maturity: 15-Sep-2022
                 ResetOffset: 0
                       Reset: 1
                       Basis: 0
                   Principal: 100
             ProjectionCurve: [1x1 ratecurve]
    DaycountAdjustedCashFlow: 0
       BusinessDayConvention: "actual"
                    Holidays: NaT
                        Name: ""

Create Black Model Object

Use finmodel to create a Black model object.

BlackModel = finmodel("Black",'Volatility',0.2)

BlackModel = 
  Black with properties:

    Volatility: 0.2000
         Shift: 0

Create Black Pricer Object

Use finpricer to create a Black pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

 outPricer = finpricer("analytic",'DiscountCurve',myRC,'Model',BlackModel)

outPricer = 
  Black with properties:

            Model: [1x1 finmodel.Black]
    DiscountCurve: [1x1 ratecurve]

Price Floor Instrument

Use price to compute the price for the Floor instrument.

[Price, outPR] = price(outPricer,FloorOpt)

Price = 
8.0878

outPR = 
  priceresult with properties:

       Results: [1x1 table]
    PricerData: []

Price Multiple Vanilla Floor Instruments Using Black Model and Black Pricer

This example shows the workflow to price multiple vanilla Floor instruments when you use a Black model and a Black pricing method.

Create ratecurve Object

Create a ratecurve object using ratecurve for the underlying interest-rate curve for the floor instrument.

Settle = datetime(2018,9,15);
Type = 'zero';
ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]';
ZeroDates = Settle + ZeroTimes;
 
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)

myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [10x1 datetime]
                Rates: [10x1 double]
               Settle: 15-Sep-2018
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create Floor Instrument Object

Use fininstrument to create a Floor instrument object for three Floor instruments.

FloorOpt = fininstrument("Floor",'Maturity',datetime([2022,9,15 ; 2022,9,15 ; 2022,9,15]),'Strike',[0.03 ; 0.04 ; 0.05],'ProjectionCurve',myRC)

FloorOpt=3×1 Floor array with properties:
    Strike
    Maturity
    ResetOffset
    Reset
    Basis
    Principal
    ProjectionCurve
    DaycountAdjustedCashFlow
    BusinessDayConvention
    Holidays
    Name

Create Black Model Object

Use finmodel to create a Black model object.

BlackModel = finmodel("Black",'Volatility',0.2)

BlackModel = 
  Black with properties:

    Volatility: 0.2000
         Shift: 0

Create Black Pricer Object

Use finpricer to create a Black pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

 outPricer = finpricer("analytic",'DiscountCurve',myRC,'Model',BlackModel)

outPricer = 
  Black with properties:

            Model: [1x1 finmodel.Black]
    DiscountCurve: [1x1 ratecurve]

Price Floor Instruments

Use price to compute the prices for the Floor instruments.

[Price, outPR] = price(outPricer,FloorOpt)

Price = 3×1

    8.0878
   12.0033
   15.9263

outPR=3×1 priceresult array with properties:
    Results
    PricerData

Price Vanilla Floor Instrument Using HullWhite Model and HullWhite Pricer

This example shows the workflow to price a vanilla Floor instrument when you use a HullWhite model and a HullWhite pricing method.

Create Floor Instrument Object

Use fininstrument to create a Floor instrument object.

FloorOpt = fininstrument("Floor",'Strike',0.039,'Maturity',datetime(2019,1,30),'Reset',4,'Principal',100,'Basis',12,'Name',"floor_option")

FloorOpt = 
  Floor with properties:

                      Strike: 0.0390
                    Maturity: 30-Jan-2019
                 ResetOffset: 0
                       Reset: 4
                       Basis: 12
                   Principal: 100
             ProjectionCurve: [0x0 ratecurve]
    DaycountAdjustedCashFlow: 0
       BusinessDayConvention: "actual"
                    Holidays: NaT
                        Name: "floor_option"

Create HullWhite Model Object

Use finmodel to create a HullWhite model object.

HullWhiteModel = finmodel("HullWhite",'Alpha',0.032,'Sigma',0.04)

HullWhiteModel = 
  HullWhite with properties:

    Alpha: 0.0320
    Sigma: 0.0400

Create ratecurve Object

Create a ratecurve object using ratecurve.

Settle = datetime(2018,9,15);
Type = 'zero';
ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]';
ZeroDates = Settle + ZeroTimes;
 
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)

myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [10x1 datetime]
                Rates: [10x1 double]
               Settle: 15-Sep-2018
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create HullWhite Pricer Object

Use finpricer to create a HullWhite pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

outPricer = finpricer("analytic",'Model',HullWhiteModel,'DiscountCurve',myRC)

outPricer = 
  HullWhite with properties:

    DiscountCurve: [1x1 ratecurve]
            Model: [1x1 finmodel.HullWhite]

Price Floor Instrument

Use price to compute the price for the Floor instrument.

Price = price(outPricer,FloorOpt)

Price = 
1.2676

Price Amortizing Floor Instrument Using Black Model and Black Pricer

This example shows the workflow to price an amortizing Floor instrument when you use a Black model and a Black pricing method.

Create Floor Instrument Object

Use fininstrument to create an amortizing Floor instrument object.

CADates = datetime([2020,9,1 ; 2023,9,1]);
CAPrincipal = [100; 85];
Principal = timetable(CADates,CAPrincipal);

FloorOpt = fininstrument("Floor",'Maturity',datetime(2023,9,1),'Strike',0.015,'Principal',Principal,'Name',"floor_amortizing_option")

FloorOpt = 
  Floor with properties:

                      Strike: 0.0150
                    Maturity: 01-Sep-2023
                 ResetOffset: 0
                       Reset: 1
                       Basis: 0
                   Principal: [2x1 timetable]
             ProjectionCurve: [0x0 ratecurve]
    DaycountAdjustedCashFlow: 0
       BusinessDayConvention: "actual"
                    Holidays: NaT
                        Name: "floor_amortizing_option"

Create Black Model Object

Use finmodel to create a Black model object.

BlackModel = finmodel("Black",'Volatility',0.2)

BlackModel = 
  Black with properties:

    Volatility: 0.2000
         Shift: 0

Create ratecurve Object

Create a ratecurve object using ratecurve.

Settle = datetime(2018,9,1);
Type = 'zero';
ZeroTimes = [calyears([1 2 3 4 5 7 10])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168]';
ZeroDates = Settle + ZeroTimes;
            
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates);

Create Black Pricer Object

Use finpricer to create a Black pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

outPricer = finpricer("analytic",'Model',BlackModel,'DiscountCurve',myRC)

outPricer = 
  Black with properties:

            Model: [1x1 finmodel.Black]
    DiscountCurve: [1x1 ratecurve]

Price Floor Instrument

Use price to compute the price for the Floor instrument.

Price = price(outPricer,FloorOpt)

Price = 
3.0030

Price Vanilla Floor Instrument Using HullWhite Model and IRTree Pricer

This example shows the workflow to price a vanilla Floor instrument when using a HullWhite model and an IRTree pricing method.

Create Floor Instrument Object

Use fininstrument to create a Floor instrument object.

FloorOpt = fininstrument("Floor",'Strike',0.03,'Maturity',datetime(2020,1,30),'Reset',4,'Principal',100,'Basis',8,'Name',"floor_option")

FloorOpt = 
  Floor with properties:

                      Strike: 0.0300
                    Maturity: 30-Jan-2020
                 ResetOffset: 0
                       Reset: 4
                       Basis: 8
                   Principal: 100
             ProjectionCurve: [0x0 ratecurve]
    DaycountAdjustedCashFlow: 0
       BusinessDayConvention: "actual"
                    Holidays: NaT
                        Name: "floor_option"

Create HullWhite Model Object

Use finmodel to create a HullWhite model object.

HullWhiteModel = finmodel("HullWhite",'Alpha',0.01,'Sigma',0.10)

HullWhiteModel = 
  HullWhite with properties:

    Alpha: 0.0100
    Sigma: 0.1000

Create ratecurve Object

Create a ratecurve object using ratecurve.

Settle = datetime(2018,9,15);
Type = 'zero';
ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20 30])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293 0.0307]';
ZeroDates = Settle + ZeroTimes;
 
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)

myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [10x1 datetime]
                Rates: [10x1 double]
               Settle: 15-Sep-2018
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create IRTree Pricer Object

Use finpricer to create an IRTree pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

CFdates = cfdates(Settle, FloorOpt.Maturity, FloorOpt.Reset, FloorOpt.Basis);
outPricer = finpricer("IRTree",'Model',HullWhiteModel,'DiscountCurve',myRC,'TreeDates',CFdates')

outPricer = 
  HWBKTree with properties:

             Tree: [1x1 struct]
        TreeDates: [6x1 datetime]
            Model: [1x1 finmodel.HullWhite]
    DiscountCurve: [1x1 ratecurve]

Price Floor Instrument

Use price to compute the price and sensitivities for the Floor instrument.

[Price, outPR] = price(outPricer,FloorOpt,["all"])

Price = 
5.7821

outPR = 
  priceresult with properties:

       Results: [1x4 table]
    PricerData: [1x1 struct]

outPR.Results

ans=1×4 table
    Price      Delta     Gamma      Vega 
    ______    _______    ______    ______

    5.7821    -110.54    141.45    31.821

Price Floor Instrument Using BraceGatarekMusiela Model and IRMonteCarlo Pricer

This example shows the workflow to price a Floor instrument when using a BraceGatarekMusiela model and an IRMonteCarlo pricing method.

Create Floor Instrument Object

Use fininstrument to create a Floor instrument object.

FloorOpt = fininstrument("Floor","Maturity",datetime(2022,9,15),'Strike',0.05,'Reset',1,'Name',"floor_option")

FloorOpt = 
  Floor with properties:

                      Strike: 0.0500
                    Maturity: 15-Sep-2022
                 ResetOffset: 0
                       Reset: 1
                       Basis: 0
                   Principal: 100
             ProjectionCurve: [0x0 ratecurve]
    DaycountAdjustedCashFlow: 0
       BusinessDayConvention: "actual"
                    Holidays: NaT
                        Name: "floor_option"

Create BraceGatarekMusiela Model Object

Use finmodel to create a BraceGatarekMusiela model object.

BGMVolFunc = @(a,t) (a(1)*t + a(2)).*exp(-a(3)*t) + a(4);
BGMVolParams = [.3 -.02 .7 .14];
numRates = 20;
VolFunc(1:numRates-1) = {@(t) BGMVolFunc(BGMVolParams,t)};
Beta = .08;
CorrFunc = @(i,j,Beta) exp(-Beta*abs(i-j));
Correlation = CorrFunc(meshgrid(1:numRates-1)',meshgrid(1:numRates-1),Beta);
BGM = finmodel("BraceGatarekMusiela",'Volatility',VolFunc,'Correlation',Correlation,'Period',1);

Create ratecurve Object

Create a ratecurve object using ratecurve.

Settle = datetime(2019,1,1);
Type = 'zero';
ZeroTimes = [calmonths(6) calyears([1 2 3 4 5 7 10 20])]';
ZeroRates = [0.0052 0.0055 0.0061 0.0073 0.0094 0.0119 0.0168 0.0222 0.0293]';
ZeroDates = Settle + ZeroTimes;
 
myRC = ratecurve('zero',Settle,ZeroDates,ZeroRates)

myRC = 
  ratecurve with properties:

                 Type: "zero"
          Compounding: -1
                Basis: 0
                Dates: [9x1 datetime]
                Rates: [9x1 double]
               Settle: 01-Jan-2019
         InterpMethod: "linear"
    ShortExtrapMethod: "next"
     LongExtrapMethod: "previous"

Create IRMonteCarlo Pricer Object

Use finpricer to create an IRMonteCarlo pricer object and use the ratecurve object for the 'DiscountCurve' name-value pair argument.

outPricer = finpricer("IRMonteCarlo",'Model',BGM,'DiscountCurve',myRC,'SimulationDates',ZeroDates)

outPricer = 
  BGMMonteCarlo with properties:

          NumTrials: 1000
      RandomNumbers: []
      DiscountCurve: [1x1 ratecurve]
    SimulationDates: [01-Jul-2019    01-Jan-2020    01-Jan-2021    01-Jan-2022    01-Jan-2023    01-Jan-2024    01-Jan-2026    01-Jan-2029    01-Jan-2039]
              Model: [1x1 finmodel.BraceGatarekMusiela]

Price Floor Instrument

Use price to compute the price and sensitivities for the Floor instrument.

[Price,outPR] = price(outPricer,FloorOpt,["all"])

Price = 
14.7975

outPR = 
  priceresult with properties:

       Results: [1x3 table]
    PricerData: [1x1 struct]

outPR.Results

ans=1×3 table
    Price      Delta     Gamma 
    ______    _______    ______

    14.797    -398.43    1399.5

Price Floor Instrument Using CoxIngersollRoss Model and IRTree Pricer

This example shows the workflow to price a Floor instrument when you use a CoxIngersollRoss model and an IRTree pricing method.

Create Floor Instrument Object

Use fininstrument to create a Floor instrument object.

Maturity = datetime(2027,1,1); 
StrikeFloor = 0.035;
Reset = 1;
Floor = fininstrument("Floor",Strike=StrikeFloor,Maturity=Maturity,Reset=Reset,Name="Floor_inst")

Floor = 
  Floor with properties:

                      Strike: 0.0350
                    Maturity: 01-Jan-2027
                 ResetOffset: 0
                       Reset: 1
                       Basis: 0
                   Principal: 100
             ProjectionCurve: [0x0 ratecurve]
    DaycountAdjustedCashFlow: 0
       BusinessDayConvention: "actual"
                    Holidays: NaT
                        Name: "Floor_inst"

Create CoxIngersollRoss Model Object

Use finmodel to create a CoxIngersollRoss model object.

alpha = 0.03; 
theta = 0.02; 
sigma = 0.1; 
CIRModel = finmodel("CoxIngersollRoss",Sigma=sigma,Alpha=alpha,Theta=theta)

CIRModel = 
  CoxIngersollRoss with properties:

    Sigma: 0.1000
    Alpha: 0.0300
    Theta: 0.0200

Create ratecurve Object

Create a ratecurve object using ratecurve.

Times= [calyears([1 2 3 4 ])]';
Settle = datetime(2023,1,1);
ZRates = [0.035; 0.042147; 0.047345; 0.052707]';
ZDates = Settle + Times;
Compounding = -1; 
Basis = 1;
ZeroCurve = ratecurve("zero",Settle,ZDates,ZRates,Compounding = Compounding, Basis = Basis);

Create IRTree Pricer Object

Use finpricer to create an IRTree pricer object for the CoxIngersollRoss model and use the ratecurve object for the 'DiscountCurve' name-value argument.

CIRPricer = finpricer("irtree",Model=CIRModel,DiscountCurve=ZeroCurve,Maturity=ZDates(end),NumPeriods=length(ZDates))

CIRPricer = 
  CIRTree with properties:

             Tree: [1x1 struct]
        TreeDates: [4x1 datetime]
            Model: [1x1 finmodel.CoxIngersollRoss]
    DiscountCurve: [1x1 ratecurve]

Price Floor Instrument

Use price to compute the price for the Floor instrument.

[Price,outPR] = price(CIRPricer,Floor,"all")

Price = 
0.2361

outPR = 
  priceresult with properties:

       Results: [1x4 table]
    PricerData: [1x1 struct]

outPR.Results

ans=1×4 table
     Price      Delta     Gamma      Vega 
    _______    _______    ______    ______

    0.23606    -29.667    1968.3    6.1077

More About

Floor

A floor is a contract that includes a guarantee setting the minimum interest rate received by the holder, based on an otherwise floating interest rate.

A floor instrument sets a minimum interest rate, known as the floor rate, below which the interest payments on a loan or investment cannot fall. If the reference interest rate, such as LIBOR or a government bond yield, falls below the floor rate, the holder of the floor instrument will receive a payment to compensate for the difference.

The payoff for a floor is: $$\max (FloorRate-CurrentRate,0)$$

Version History

Introduced in R2020a

R2023b: Support for Pricing Floor Instruments Using CoxIngersollRoss Model and IRTree Pricer

You can price Floor instruments using a CoxIngersollRoss model object and an IRTree pricing method.

R2022b: Serial date numbers not recommended

Although Floor supports serial date numbers, datetime values are recommended instead. The datetime data type provides flexible date and time formats, storage out to nanosecond precision, and properties to account for time zones and daylight saving time.

To convert serial date numbers or text to datetime values, use the datetime function. For example:

t = datetime(738427.656845093,"ConvertFrom","datenum");
y = year(t)

y =

        2021

There are no plans to remove support for serial date number inputs.