I am trying to work out the following fixed income problem, where I am asked to price a structured note in Excel, which seems to me to be a reverse collar. My purpose was replicating this structured note through a long and a short cap and consequently using the Black formula for cap. However I do not have enough inputs, since volatility and strike price are unknown to me. Moreover, since my trade date is a given day in 2013, the maturity date is very long (2029) and I should compute the price of too many caplets. As a result, the choice of caps as replicating instruments is not the better one. Could I replicate this stuctured note in an alternative way, maybe using coupon bonds, whose price is known to me? How can I implement this idea in Excel? Thank you.

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  • $\begingroup$ What is so difficult about calculating the value of 32 caplets? $\endgroup$ – noob2 Jan 30 '18 at 22:28
  • $\begingroup$ I don't understand the issue either. $\endgroup$ – Daneel Olivaw Jan 30 '18 at 22:37
  • $\begingroup$ It is the first time I solve this exercise, so I apologize for asking a question that maybe it is simple. $\endgroup$ – Nenne Jan 31 '18 at 7:42
  • $\begingroup$ @DaneelOlivaw I was just asking if there exist another simpler (and maybe faster) strategy to replicate this structured note. $\endgroup$ – Nenne Jan 31 '18 at 7:43
  • $\begingroup$ @noob2 Aren't caplets 30, if I assume that the first Euribor rate is not stochastic? $\endgroup$ – Nenne Jan 31 '18 at 7:47

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