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RE:Delta on CapFloor (Final?)

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Andre Louw-2

RE:Delta on CapFloor (Final?)

Hi again,

I've been reading, studying and once again thinking about all that's been
said, as well as my original question on a total Delta for a CapFloor. The
conclusion I've come to is as follows:

It's confusing to talk about 'Delta' on a Cap/Floor instrument, seeing as it
is a portfolio of options. What I'm looking for is a 'Hedge ratio' for a
Cap/Floor using a Swap instrument. This is very simply the ratio between the
Cap/Floor's sensitivity to a 1bp move in the underlying termstructure versus
the same on a Swap with an EQUIVALENT structure (not assuming this is the
underlying for the Cap/Floor - just a strip of FRA's with the same STRUCTURE
as that of the Cap/Floor).

Xavier, is that not exactly what you were saying?

I think this has cleared it up for me, please feel free to burst my bubble
if you differ!

Andre

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Toyin Akin-4

Re: RE:Delta on CapFloor (Final?)

Andre,

I agree entirely.

Best Regards,
Toyin Akin.

----- Original Message -----
From: "Andre Louw" <[hidden email]>
To: "QuantlibUsers (E-mail)" <[hidden email]>
Sent: Tuesday, October 22, 2002 8:45 AM
Subject: [Quantlib-users] RE:Delta on CapFloor (Final?)

> Hi again,
>
> I've been reading, studying and once again thinking about all that's been
> said, as well as my original question on a total Delta for a CapFloor. The
> conclusion I've come to is as follows:
>
> It's confusing to talk about 'Delta' on a Cap/Floor instrument, seeing as
it
> is a portfolio of options. What I'm looking for is a 'Hedge ratio' for a
> Cap/Floor using a Swap instrument. This is very simply the ratio between
the
> Cap/Floor's sensitivity to a 1bp move in the underlying termstructure
versus
> the same on a Swap with an EQUIVALENT structure (not assuming this is the
> underlying for the Cap/Floor - just a strip of FRA's with the same
STRUCTURE

> as that of the Cap/Floor).
>
> Xavier, is that not exactly what you were saying?
>
> I think this has cleared it up for me, please feel free to burst my bubble
> if you differ!
>
> Andre
>
>
> -------------------------------------------------------------------------
> This e-mail is intended only for the use of the individual or entity named
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> proprietary to the company and protected by law. If you are not the

intended
> recipient, you are hereby notified that any dissemination, distribution or
> copying of this e-mail is strictly prohibited. Opinions, conclusions and
> other information in this message that do not relate to the official
> business of our company shall be understood as neither given nor endorsed
by

> it.
>
>
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Toyin Akin-4

Re: RE:Delta on CapFloor (Final?)

In reply to this post by Andre Louw-2

Actually to make things even more confusing...!!

Sure a Trader may hedge a 2y cap with a 2y swap, however Traders can also
hedge their whole portfolio of
caps (could be a mixture of any cap structure) with just a 10y swap. This is
so that they may simply transform this into
a 10y bond to hedge.

Basically, choose your hedge instrument(s) first, then compute the hedge.

Regards,
Toyin Akin.

----- Original Message -----
From: "Andre Louw" <[hidden email]>
To: "QuantlibUsers (E-mail)" <[hidden email]>
Sent: Tuesday, October 22, 2002 8:45 AM
Subject: [Quantlib-users] RE:Delta on CapFloor (Final?)

> Hi again,
>
> I've been reading, studying and once again thinking about all that's been
> said, as well as my original question on a total Delta for a CapFloor. The
> conclusion I've come to is as follows:
>
> It's confusing to talk about 'Delta' on a Cap/Floor instrument, seeing as
it
> is a portfolio of options. What I'm looking for is a 'Hedge ratio' for a
> Cap/Floor using a Swap instrument. This is very simply the ratio between
the
> Cap/Floor's sensitivity to a 1bp move in the underlying termstructure
versus
> the same on a Swap with an EQUIVALENT structure (not assuming this is the
> underlying for the Cap/Floor - just a strip of FRA's with the same
STRUCTURE

Toyin Akin-4

Re: RE:Delta on CapFloor (Final?)

In reply to this post by Andre Louw-2

Sorry about all these emails again, but one further point...

You say a swap with an EQUIVALENT structure.

What would be more accurate is a swap with an EQUIVALENT delta.
Remember, you could hedge the who cap with just a single Futures contract.
Certainly different structures here.

Regards,
Toyin Akin.

----- Original Message -----
From: "Andre Louw" <[hidden email]>
To: "QuantlibUsers (E-mail)" <[hidden email]>
Sent: Tuesday, October 22, 2002 8:45 AM
Subject: [Quantlib-users] RE:Delta on CapFloor (Final?)

> Hi again,
>
> I've been reading, studying and once again thinking about all that's been
> said, as well as my original question on a total Delta for a CapFloor. The
> conclusion I've come to is as follows:
>
> It's confusing to talk about 'Delta' on a Cap/Floor instrument, seeing as
it
> is a portfolio of options. What I'm looking for is a 'Hedge ratio' for a
> Cap/Floor using a Swap instrument. This is very simply the ratio between
the
> Cap/Floor's sensitivity to a 1bp move in the underlying termstructure
versus
> the same on a Swap with an EQUIVALENT structure (not assuming this is the
> underlying for the Cap/Floor - just a strip of FRA's with the same
STRUCTURE

Xavier.Abulker

Re: RE:Delta on CapFloor (Final?)

In reply to this post by Andre Louw-2

Hi Andre,
yes this is better said than me and exactly what you have to do: take the
hedge ratio to know the amount of swap to hedge your cap.
Of course you can also search the amount of "callable bond double knock
in/out barrier" to hedge a cap but this is not standard at all. The most
common is to hedge with the instruments you find in your curve : money
market , futures and swaps.
Bye
Xavier

Andre Louw
<[hidden email]> To: "QuantlibUsers (E-mail)" <[hidden email]>
Sent by: cc:
[hidden email] Subject: [Quantlib-users] RE:Delta on CapFloor (Final?)
eforge.net

22/10/2002 09:45

Hi again,

I've been reading, studying and once again thinking about all that's been
said, as well as my original question on a total Delta for a CapFloor. The
conclusion I've come to is as follows:

It's confusing to talk about 'Delta' on a Cap/Floor instrument, seeing as
it
is a portfolio of options. What I'm looking for is a 'Hedge ratio' for a
Cap/Floor using a Swap instrument. This is very simply the ratio between
the
Cap/Floor's sensitivity to a 1bp move in the underlying termstructure
versus
the same on a Swap with an EQUIVALENT structure (not assuming this is the
underlying for the Cap/Floor - just a strip of FRA's with the same
STRUCTURE
as that of the Cap/Floor).

Xavier, is that not exactly what you were saying?

I think this has cleared it up for me, please feel free to burst my bubble
if you differ!

Andre

-------------------------------------------------------------------------
This e-mail is intended only for the use of the individual or entity named
above and may contain information that is confidential and privileged,
proprietary to the company and protected by law. If you are not the
intended
recipient, you are hereby notified that any dissemination, distribution or
copying of this e-mail is strictly prohibited. Opinions, conclusions and
other information in this message that do not relate to the official
business of our company shall be understood as neither given nor endorsed
by
it.

-------------------------------------------------------
This sf.net emial is sponsored by: Influence the future of
Java(TM) technology. Join the Java Community Process(SM) (JCP(SM))
program now. http://ad.doubleclick.net/clk;4699841;7576301;v?
http://www.sun.com/javavote
_______________________________________________
Quantlib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users

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