A simple solution for sticky cap and sticky floor

Abstract

We show an analytical approach to sticky cap and sticky floor according to the Bond Market Model, a recently introduced version of the multi-factor Gaussian Heath–Jarrow–Morton model that is particularly easy to manage and calibrate. This solution allows having a comprehensive approach even for this class of Interest Rates' exotic derivatives that are fully path-dependent.

Keywords:

• Sticky cap; Sticky floor
• Bond Market Model

Acknowledgments

We would like to thank Carlo Acerbi and Claudio Nordio. I am grateful to Laura Filippi and Maria Teresa Bandini for a critical reading of the manuscript and to my Father for never-ending encouragement during this work.

Notes

†The views expressed in this note are those of the author and do not necessarily reflect those of the bank.

Additional information

Notes on contributors

Roberto Baviera†

†The views expressed in this note are those of the author and do not necessarily reflect those of the bank.