RE:Delta on Capfloor
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Hi,
Francesco wrote: >> I could not understand why you need to calculate Delta NUMERICALLY. Francesco, a bit of confusion, I actually meant analytically! >> In order to get the the cap delta starting from caplet >> deltas, you simply need to sum them up, since the cap is a sum of caplets... >> (and given the additive propriety of the derivative operator) Xavier wrote: >> from what I saw in the major european trading rooms on IR derivatives it's >> even simpler: >> the total delta is just the sum the delta for each caplet. You need to >> weight these deltas if the notional changes during the life of the cap ( >> amortization e.g) OK, I hear what you guys are saying, BUT: Firstly, I have the 'delta' as showing the ratio between the option's sensitivity to a 1 basis point move in the strike versus the underlying instrument's sensitivity to a 1 basis point move in the yield curve. Now back to capfloors - according to me the delta should show the ratio between the capfloor's total 01 sensitivity vs that of an equivalent swap? Alas, the sum of the caplet's delta is not event close to this! Have I got myself totally mixed up or what? 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. |
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Hi Andre,
I think you're mixed up saying that the swap sensitivty is equivalent to a cap sensitivity. the plain vanilla swap is equivalent to a bond, a notional exchange + fix flows. there's almost no convexity and the payoff is linear. Now I presume you know the shape of an option payoff: not linear at all! e.g the sensi of a 5Y 100 M swap at the break even is rougthly 45 000, the sensi of a 5Y 100M cap at the same strike is 2 times less: 22 500 because here the delta is 0.5 and not 1. now take a deep in the money cap, don't you find that the cap sensitivity tends to the swap sensitivity? Regards Xavier Andre Louw <[hidden email]> To: "QuantlibUsers (E-mail)" <[hidden email]> Sent by: cc: [hidden email] Subject: [Quantlib-users] RE:Delta on Capfloor eforge.net 16/10/2002 07:50 Hi, Francesco wrote: >> I could not understand why you need to calculate Delta NUMERICALLY. Francesco, a bit of confusion, I actually meant analytically! >> In order to get the the cap delta starting from caplet >> deltas, you simply need to sum them up, since the cap is a sum of caplets... >> (and given the additive propriety of the derivative operator) Xavier wrote: >> from what I saw in the major european trading rooms on IR derivatives it's >> even simpler: >> the total delta is just the sum the delta for each caplet. You need to >> weight these deltas if the notional changes during the life of the cap ( >> amortization e.g) OK, I hear what you guys are saying, BUT: Firstly, I have the 'delta' as showing the ratio between the option's sensitivity to a 1 basis point move in the strike versus the underlying instrument's sensitivity to a 1 basis point move in the yield curve. Now back to capfloors - according to me the delta should show the ratio between the capfloor's total 01 sensitivity vs that of an equivalent swap? Alas, the sum of the caplet's delta is not event close to this! Have I got myself totally mixed up or what? 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 email is sponsored by: viaVerio will pay you up to $1,000 for every account that you consolidate with us. http://ad.doubleclick.net/clk;4749864;7604308;v? http://www.viaverio.com/consolidator/osdn.cfm _______________________________________________ Quantlib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users ************************************************************************* Ce message et toutes les pieces jointes (ci-apres le "message") sont confidentiels et etablis a l'intention exclusive de ses destinataires. Toute utilisation ou diffusion non autorisee est interdite. Tout message electronique est susceptible d'alteration. La Fimat et ses filiales declinent toute responsabilite au titre de ce message s'il a ete altere, deforme ou falsifie. ******** This message and any attachments (the "message") are confidential and intended solely for the addressees. Any unauthorised use or dissemination is prohibited. E-mails are susceptible to alteration. Neither Fimat nor any of its subsidiaries or affiliates shall be liable for the message if altered, changed or falsified. ************************************************************************* |
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