I will have an interview for a junior position as interest rates volatility trader. I would like ask you some questions about greeks of caps floors and swaptions.

Are Caps vega positive? Are floors and swaptions too?

A spread volatilty trading usiing caps/floors differs from a trade using swaptions from the rate on which I am referring too right?

For instance: If I have a view on volatility term structure of eg: Libor I should use a combination of cap/floor ( like long cap on 30yrs rates and short caps on 10yrs if i think that volatility of 30yrs rates should increase realtive to 10yrs). Instead if I have a view on volatility term structure of Swap rates I should use swaptions right?

Thank you in advance.

  • $\begingroup$ Would the following be fair assumptions to make regarding your question? 1) You are referring to market standard LIBOR caps, floors and swaptions (fixed vs LIBOR) 2) You are using a market standard model, e.g. Black / Bachelier, with the corresponding strike-dependent implied vol taken as input, potentially from another model such as SABR. 3) You are referring to a vega with respect to that implied vol, i.e. for the implied vol at a given strike? $\endgroup$
    – Marco
    Feb 7, 2021 at 14:08


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