ResolutionPro’s IRO (interest rate options) module provides valuation and risk management for a wide range of interest rate products, including swaption valuation and cap valuation. These include the simple closed-form models for Forward Rate Agreements (FRA’s), caps and floors, European bond options and European swaptions, as well as term structure models for Bermudan swaptions, bond options, and callable bonds.

Swaptions and Caps

• European Swaptions
• Bermudan Swaptions
• Interest Rate Caps
• Interest Rate Floors
• Interest Rate Collars
• Barrier Caps
• Variable maturity swaps
• Callable Bonds
• Bond Options

Swaption models

• Normal and log-normal term structure models, with a provision for mean reversion
• Value European caps, floors, and swaptions using either the adjusted Black model or a term structure model
• American and Bermudan options valued using term structure models implemented in a stable and efficient trinomial tree
• Calibrate the chosen term structure model to market data
• Includes an integrated zero curve model

Interest Rate Models 

The IRO component is designed to deal with a range of derivative instruments whose values are primarily dependent on the term structure of interest rates. The supported functions can be usefully split into two categories:

Log-Normal Model

For European style options where the underlying variable is assumed to have a log-normal distribution. The underlying might be an interest rate, yield, par swap rate, or bond price. In all of these cases, the option is valued using a variant of the Black (1976) model.

Term Structure Models

Bermudan swaptions and other related options are reliant on different interest rates at different points of time, and appropriate valuation models must therefore deal with the entire term structure of interest rates. Bermudan and American style instruments such as callable/puttable bonds, bond options, and swaptions can be valued using the following models:

• Black-Derman-Toy (1990)
• Hull and White (1993)
• Ho and Lee (1986)
• Black and Karasinski (1991)

Related Modules

Resolution Bonds - Fixed coupon bonds, FRNs, and money market instruments

Resolution Swaps - Zero curve construction and interest rate swap pricing

Resolution has a straight-forward and fair pricing model for its products which ensures that our customers receive excellent value to meet their specific needs.

For more information see our pricing plans.

Since everyone has different requirements, we would be more than happy to talk to you regarding a customisable pricing solution.