# Questions tagged [caplet]

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### 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 ...
• 6,283
708 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 ...
• 645
290 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 ...
• 6,283
281 views

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 ...
119 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 ...
2k 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 ...
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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 ...
• 383
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### 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 ...
• 157
299 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 ...
86 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 ...
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### 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 \...
• 383
1 vote
629 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 ...
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1 vote
271 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 ...
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1 vote
114 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 ...
388 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 ...
119 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 ...
43 views

### 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 ...
445 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 ...
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436 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 ...
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