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Analyzing Municipal Derivatives with Munex
By Samir Dube
Jun 25, 2003, 12:38

I. Options
Compute the value of the embedeed options in a municipal bond issue, select refunding candidates on the basis of refunding efficiency (the ratio of present value savings to option value), and solve for option adjusted TIC

II. Swaps & Swaptions
Compute the swap rate or upfront payment given either variable for plain-vanilla, forward starting fixed to variable or basis swaps or swaptions. Requires swap curve for variable components, amortization, and volatility. Methodology : binomial tree for each variable component, we value the resulting cashflow and arrive at a rate that would equate the two cashflows

III. Interest Rate Derivatives
Compute the cost of an interest rate cap, floor & collar given variable rate curve, amortization, and volatility. Methodology : sum of caplets, binomial tree model to value the cash flow difference that would come into effect at any point the cap is triggered

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Analyzing Municipal Derivatives with Munex

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