Model[CapFloor]__Pricing_Method

*Pricing Method* refers to List of available pricing methods.

Available *Pricing Method* types:

*Bachelier*

Minimum required license: *Student*

Assumes that the underlying forward rate *F* follows the Bachelier process so that it is normally distributed at any future time.

Concretely *F* is diffused as *dF = σdw* in its martingale measure.

The QuantLib engine used is the BachelierCapFloor in the interest rate case and the YoYInflationBachelierCapFloor in the inflation case.

*Black*

Assumes that the underlying forward rate *F* follows the Black process so that it is lognormally distributed at any future time.

Concretely *F* is diffused as *dF = σFdw* in its martingale measure, where *σ* may be time dependent.

The QuantLib engine used is the BlackCapFloor in the interest rate case and the YoYInflationBlackCapFloor in the inflation case.

*Black Displaced*

Minimum required license: *Student*

Assumes that the underlying forward rate *F* follows the displaced Black process so that it is lognormally distributed with a horizontal shift at any future time.

Concretely *F* is diffused as *d(F+θ) = σ(F+θ)dw* in its martingale measure, which treats *d(F+θ)* as being always positive.

It follows that a positive *θ* results to an *F* at time *T* of which the lognormal distribution is shifted to the left by an amount equal to *θ*.

Note this model reduses to the *Black* model when *θ = 0*.

The QuantLib engine used is the BlackCapFloor with a non-trivial displacement amount in the interest rate case and the YoYInflationUnitDisplacedBlackCapFloor in the inflation case.