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Questions tagged [cap]

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2 votes
1 answer
283 views

Python Quantlib for the calibration of interest rate caps

I am trying to calibrate the G2++ model to interest rate caps using the Quantlib library in Python. I have the problem that my optimization always stops with the starting values. So probably either my ...
0 votes
0 answers
53 views

cap/floor valuation in a hypothetical scenario using monte carlo simulation

How can I do a cap/floor valuation in a hypothetical scenario using monte carlo simulations of some interest rate model? My conditions: (For example) I want to do valuation of a cap option under a ...
2 votes
0 answers
77 views

ATM cap prices in Vasicek model (Filipovic)

I am trying to replicate the ATM cap prices in table 7.1 (see bottom of this post) from Filipovic's book "Term Structure Models - A Graduate Course" which assume the Vasicek model and uses ...
0 votes
0 answers
380 views

How to price an inflation caplet/floorlet using Bachelier Formula?

I am trying to recalculate the prices of inflation cap in order to calibrate a SABR model. I have this table which gives me the normal volatilities values in % for the different strikes and different ...
1 vote
1 answer
177 views

Quantlib - bond with capped coupons

Using QuantLib I want to price a Floating rate bond whose coupons are capped at some rate. I understand I could price the coupon caps separately and then add that to a zero-bond. However, I've noticed ...
3 votes
0 answers
104 views

Which expiry interpolation method for caplet/floorlet surfaces?

I want to bootstrap an (implied volatility) caplet/floorlet surface from quoted cap/floor volatilities on a fixed strike grid. I'm thinking about either using a left-continuous or a linear ...
0 votes
1 answer
405 views

Should one calibrate SABR model on caps or caplets?

I want to build a volatility surface for caps on a 3M index implied from SABR model. I have a set of cap normal volatilities for a range of strikes (4%, 6%, 8%, 10% and ATM) and maturities (1, 2, 3, 4 ...
0 votes
0 answers
154 views

LIBOR-in-arrears swap

Let's say we have a situation where all 12-month LIBOR forward rates at 8% per annum with annual compounding. All cap volatilities are 16%. Estimates the difference between the way a sophisticated ...
1 vote
1 answer
866 views

How to build a volatility surface for caps from the SABR model?

My end goal is to build a volatility surface for caps. It's well known that SABR model has Hagan approximation formulas for log-normal and normal implied volatilities of options, e.g. caplets, ...
4 votes
0 answers
260 views

IR Cap Forward Premium

A well known broker quotes cap/floors as spot premium for ATM straddles but forward premium for the skew, given that the difference between spot premium and forward premium is that the option is not ...
1 vote
0 answers
468 views

Greeks of caps,floors and swaptions

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 ...
0 votes
1 answer
817 views

Delta and vega sensitivities for Cap

I have a task to do but it is very difficult.. I have to calculate the: Delta Sensitivity analytically, that is the first derivative of caplet price wrt the forward rate, using the black model to ...
1 vote
2 answers
2k views

What are "greeks" in general for non-standard options (swaptions, capfloors, etc)

I know what greeks are for standard options: just take the derivative with respect to some parameter, like spot, time, rate, etc. But how does one calculate greeks for swaptions and capfloors? I was ...
0 votes
0 answers
122 views

Is the implied volatility different for forward starting caps?

Suppose we know (from looking at an available volatility surface) the implied volatility (flat volatility) of a cap with a maturity of 10 years and strike of 1%. This would correspond to a cap that's ...
1 vote
1 answer
595 views

What is the correct implied volatility to use when valuing an FRA option?

To my understanding the value of an FRA option is identical to that of a caplet of equal maturity, strike and tenor. A volatility surface of cap implied volatilities is generally available, and from ...