Various Features of the Chooser Flexible Cap

Masamitsu Ohnishi () and Yasuhiro Tamba ()
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Masamitsu Ohnishi: Graduate School of Economics, Osaka University
Yasuhiro Tamba: Graduate School of Economics, Osaka University

No 04-20, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

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.

Keywords: chooser flexible cap; LIBOR; dynamic programming; exercise strategy. (search for similar items in EconPapers)
JEL-codes: G13 G15 G21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2004-12
New Economics Papers: this item is included in nep-fin
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