RE: RE:Delta on Capfloor

Posted by Perissin Francesco on Oct 21, 2002; 4:14am
URL: http://quantlib.414.s1.nabble.com/RE-Delta-on-Capfloor-tp2259p2267.html

Hi,

>The answer given originally to my question on calculating the delta on a
>capfloor structure was that it is simply the sum of the delta's on all the
>caplets (assuming flat nominals, there is no weighting needed).


I gave you this answer assuming another definition of delta for an interest
rate instrument, i.e. the change in present value given a parallel shift of
1bp in the used curve. Also, this is quite close to the change obtained by
shifting of 1bp the prices of the benchmarks used to bootstrap the yield
curve.
This seems to be equal to what you name "sensititvity", is it right?

Regarding the definition that you are referring to, (i.e. the cap
sensitivity divided by the IRS sensitivity) I have to think a while about
it. The example could help.



>e.g I have a 3Mx12M, 3 monthly cap, which results in 3 caplets, results as
>follows:
>the 1st strikes at a delta of 0.6, the 2nd strikes at a delta of 0.5, the
>3rd at a delta of 0.4. Summing these gives 1.5!


Just for understanding, do you mean that the first fixing is in 3 months ans
last fixing in 9 months? Which curr? Which strike?
In any case, it's not correct to sum the deltas (according to your
definition). I would be tempted to say that you should sum the caplet
sensitivities in order to get the cap sensitivity. Now you could divide the
result by the IRS sensitivity, isn't it?
Let me know it this can help...


>Ok, maybe it's on the Delta with respect to spot: the above caplets gives
>0.13, 0.11, 0.08, giving a total of 0.32, (doesn't 'feel' right!),
depending
>on the termstructure and the length of the cap, the sum of the spot-delta's
>quite often goes over 1.0!


Andre, I could not understand this... could you try to explain again the
above numbers?


Ciao
Francesco
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