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Questions tagged [caplet]

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Validate spread of simulated rates under the LMM

Looking for a way to validate the spread of simulated forward rates from the LMM model. Test Log-Normality for LIBOR forward rates under the Libor Market Model this post suggests using the simulated ...
D. Welch's user avatar
2 votes
0 answers
70 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 ...
Landscape's user avatar
  • 548
2 votes
0 answers
53 views

Relation (approximate??) between Swap rate and Cap strike

I just have come across some relation between Interest rate swap and strike of Cap as below $K_{Cap Strike} = \frac{1}{1 + r \...
Brian Smith's user avatar
2 votes
1 answer
197 views

QuantLib Python: How to print each caplet/floorlet value, intrinsic value and time value at each fixing date?

I have the following code to price a floor (can also be used for cap), and have been computing the payoff myself, but I think QL can already do this. Since the cashflows I print out aren't correct as ...
PythonAutomation's user avatar
0 votes
0 answers
326 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 ...
EOST's user avatar
  • 21
3 votes
0 answers
93 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 ...
BerndSchmitz's user avatar
2 votes
2 answers
1k views

How to understand wedge?

It is heard that trading wedges (cap/floor straddle - swaption) is actually trading the correlation btw forward rates. How to understand this? Either swaption or cap/floor seem to be insensitive to ...
JUW's user avatar
  • 51
6 votes
0 answers
614 views

Caplet stripping in the bwd-looking RFR world with/without maturity adjustment

Since the beginning of this year, LIBOR rates have ceased in some markets like GBP, CHF, and JPY and rates pricing has moved into the RFR space, using compounded overnight rates as the underlying for ...
KevinT's user avatar
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1 vote
0 answers
105 views

Which Model Should I Use for Pricing USD Interest Rate Caps (7, 10, 30 year maturities) on 1Month Rates?

I am trying to price USD interest rate caps on 1M rates (e.g., LIBOR, SOFR, etc.). The caps are designed to limit the exposure on non-callable USD Pay Float / Receive fixed positions in interest rate ...
ExcelRates's user avatar
0 votes
1 answer
359 views

Caplet delta hedging

I have had a really hard time trying to simulate the delta hedging of a caplet. When I compare the process to delta hedging a call on a stock (which I already did without much trouble), I found some ...
xdw15's user avatar
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0 votes
1 answer
372 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 ...
Hasek's user avatar
  • 814
2 votes
2 answers
3k views

Where can I find caplet implied volatility data?

I am looking for caplet implied volatility data for Libor-EUR. Is there any online data base etc. available to get such data? Does ...
Brian Smith's user avatar
2 votes
1 answer
161 views

Show that the price of a LIBOR rate paid in advance is a linear combination of caplets

Let $L(t, T_1, T_2)$ be the forward LIBOR rate at time $t$ for the period $T_1$ to $T_2$. If a security pays some multiple of $L(T_1, T_1, T_2)$ at time $T_1$, how can we show that the price of this ...
Ronnie268's user avatar
  • 157
4 votes
0 answers
250 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 ...
BrownianBread's user avatar
1 vote
1 answer
220 views

What is the correct volatility to use for inverting Black76?

I'm using VCUB on Bloomberg for ATM cap volatilities and have noticed there are a few "flavors" of volatilities. I would like simply use ATM flat vols to bootstrap forward volatilities from ...
Carp's user avatar
  • 11
0 votes
0 answers
118 views

Where can (current) interest rate cap prices be found?

I'm somewhat new to interest rate models and am interested in obtaining ATM cap prices and volatilities for calibration purposes (Black-Derman-Toy, Hull-White, etc.). Ideally, this would enable me to ...
Carp's user avatar
  • 11
5 votes
1 answer
270 views

Forward starting zero-coupon bonds

We trivially have that: $$\frac{Z(t_0,t_1)}{Z(t_0,t_2)}=1+\tau L(t_0,t_1,t_2)$$ Where $L(t_0,t_1,t_2)$ is the forward Libor between $t_1$ and $t_2$, as of $t_0$. Simply inverting this relationship ...
Jan Stuller's user avatar
  • 6,098
0 votes
1 answer
106 views

Quantlib error initializing CapFloor C++ Class

I'd like to use QuantLib as a C++ library to price interest rate derivatives, in particular Cap&Floors. To semplify things a little, let's say I have a vector of EURLibor1Y rates for different ...
Matteo Campagnoli's user avatar
6 votes
2 answers
1k views

Caplet "in arrears" pricing formula

The forward Libor rate $L(t,t_1,t_2)$, with $0 \leq t \leq t_1$, must be a martingale under the T-forward measure associated with the zero coupon bond $P(t,t_2)$ that matures at time $t_2$. Pricing a ...
Jan Stuller's user avatar
  • 6,098
0 votes
0 answers
71 views

Where to find Caps/Floor historical data?

I'm trying to calibrate the Lognormal Forward Libor Model to market data, in order to calculate market implied volatilities. However, I'm having some troubles finding any Cap/Floor historic price. Not ...
Matteo Campagnoli's user avatar
1 vote
1 answer
559 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 ...
Oscar's user avatar
  • 882