Callable capped floater swap
A callable capped floater swap has two legs: a regular floating leg and
a structured coupon leg. The structured coupon rate of the j-th period
() is given by
(39)
where is the notional amount, is the rate cap, is the rate floor, is the
spread and is the scale factor. For > 0, it is called a
callable capped floater swap. For < 0, it is called a callable
inverse floater swap.
We choose a real middle life trade with more than 10 years remaining in
its lifetime. The floating leg has a quarterly payment frequency with
step-down notionals and step-up spreads. The structured coupon leg has a
semi-annually payment frequency with varying notionals, spreads, scales,
rate caps, and rate floors. The call schedule is semi-annual.