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ResolutionIRO - Caps, Floors and Swaptions

ResolutionIRO provides valuation and risk management for a wide range of interest rate options. 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/American swaptions, bond options, and callable bonds.

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Main Features

  • 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

The IRO component is designed to deal with a range of derivative instruments whose values are primarily dependent on changes in 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 and American style interest sensitive 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)




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ResolutionPro is a derivative pricing library which supports the valuation, risk management and hedge accounting of derivatives & other financial instruments.

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Price Swaptions & Caps

With ResolutionIRO you are able to;

  • Easily model hedging strategies using simple structures such as caps, collars, floors
  • Examine strategies for extending or modifying interest rate swap positions
  • Estimate the marginal value impact of options embedded in bond instruments
  • Price Swaptions
  • Compare valuations using various interest rate models
  • Value underlying swaps and other interest rate products.

Swaption Calculator

Resolution comes with swaption calculators for European swaptions and Bermudan swaptions.

Swaption Calculator

Black Derman Toy model

Learn more about the BDT model in the Resolution help documentation.

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