New answers tagged derivatives
1
vote
How does Bloomberg calculate Interest Rate Caps/Floors with Black Scholes Merton Model and Volatility set as "Normal"?
So, my question is how exactly does Bloomberg value the cap/floor,
when we use model as "Black Scholes Merton" and Volatility as
"Normal".
Well, it doesn't. It will switch both ...
- 636
2
votes
Accepted
Is there a way to use normal volatility in the Black–Scholes–Merton model to value interest rate caps?
This has actually been done widely in the industry since negative interest rates became a long-term feature of financial markets (JPY, EUR, CHF).
When your underlying is a Gaussian martingale, ...
- 2,510
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