In the formula of expiration value of caplet/floorlet, why the denominator should be (1+one year rate)? I don’t think we should discount the numerator to one year earlier. Can anyone explain? Thanks
What is the whole formula you are looking at?
the formula is on schweser notes book 5 page 248
not everyone has schweser notes. If you want help, it’s usually best to type out the question to save people looking it up.
the floorlet/caplet pays one year later after the rates have been set, so you discount the payoff to the last node !