When pricing interest rate caps, floors, caplets, and floorlets using the Black model in any application of SAS Risk Management for Banking or in SAS Market Risk Management for Insurance, the pricing methods pm_cf_cashflow_caplet, pm_cf_cashflow_structure, pm_cf_cashflow_option, and pm_cf_cashflow_forward interpolate the volatility curve incorrectly.

The correct calculation is to interpolate for the time period between the current date and the cap (or floor) maturity date. However, the method instead interpolates for the time period between the caplet (or floorlet) maturity date and the cap (or floor) maturity date. Therefore, the resulting valuations for these instruments are incorrect.

For information about an available fix for this issue, contact SAS Technical Support.

Operating System and Release Information

A fix for this issue for SAS Risk Management for Banking 3.1 is available at: