Hot answers tagged

8 votes

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

Practically, few things in real life have convenient closed-form calculations. Instead, you price some exotic, then you bump the various inputs, one or several at a time, up and down, by various small ...
user avatar
5 votes

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

If the question is how one defines Greeks for interest rate options, then it is a relatively straightforward extension of the concept from the basic idea for say equity options. They are defined as ...
user avatar
  • 910
3 votes

Delta and vega sensitivities for Cap

I'm not sure I agree with that being a very difficult task... The black formula for a caplet (using notation from Hull's book) is given by: $caplet = L \delta_k P(0, t_{k+1}) [F_k N(d_1) - R_kN(d_2)]$ ...
user avatar
  • 5,345
2 votes
Accepted

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

The procedure you have specified in your last paragraph is the only reasonable way to do it. Clearly the cap volatility is some sort of weighted average of the constituent caplet volatilities, but ...
user avatar
  • 14.1k
2 votes

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

I think it is necessary to be more precise on the terminology here, so my answer will be a bit longer. Firstly, we need to distinguish the FRA, the FRA option and the caplet/floorlet. A FRA basically ...
user avatar
  • 573

Only top scored, non community-wiki answers of a minimum length are eligible