Hi Anthony,

this is an edge case with zero input volatility (which you can set up using the constant optionlet volatility class). If you look into blackformula.cpp, this is even explicitly handled as you describe

if (stdDev==0.0)

return std::max((forward-strike)*optionType, Real(0.0))*discount;

Best Regards

Peter

Hi,

"The theory first: when pricing the coupon with a floor, you can't just take the expected LIBOR rate from your forecast curve and take the minimum between that and the floor. Instead, you need to take the expected value of the minimum between the rate and the floor, and unfortunately `E[min(R,F)]`

is not the same as `min(E[R],F)`

. So no, the floor doesn't just provide a minimum; you need a different formula to estimate the expected payoff."

Thanks

Anthony

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