RE:Delta on Capfloor

Posted by Andre Louw-2 on Oct 15, 2002; 11:40pm
URL: http://quantlib.414.s1.nabble.com/RE-Delta-on-Capfloor-tp2250.html

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

 
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