Hi, struggling to get if the ’ cap’ mentioned in the two chapters below are the same:
Valuation of Capped Floater (CFAI Book 5; Chapter 45 - Valuation and Analysis: Bonds with Embedded Options):
where discussion was on 'Value of a capped or floored floating-rate bond’
versus Valuation of Caps (CFAI Book 6; Chapter 49 - Option Market & Contracts)
where discussion was on ’ Options on Interest Rates: Caps and Floors’
They are.
In reading 45 the caps are embedded in the floating-rate bond, whereas in reading 49 they’re separately traded derivatives. But they’re the same thing, worth the same amount.
Thank you very much as always!
My pleasure.
According to the curriculum change, the cap/floor floaters are removed from the LOS in 2016.
Is it worth our time to read the piece in the Fixed Income section?
Yes.
Also, I wrote articles on valuing capped and floored floaters, and caps and floors, that may be of some help here: http://financialexamhelp123.com/valuing-floating-rate-bonds/, and http://financialexamhelp123.com/interest-rate-caps-and-floors/, respectively.