Posted by
Toyin Akin-4 on
Oct 21, 2002; 4:55am
URL: http://quantlib.414.s1.nabble.com/RE-Delta-on-Capfloor-tp2259p2268.html
Hi all,
Remember, a cap is a series of caplets. thus you are buying a portfolio of
options.
Like any portfolio of options, the sum of the deltas, which will be your
total sensitivity if rates move can
be well over 1.0. However the delta of any *ONE* caplet will be <= +- 1.0.
If each caplet is well in the money, then each caplet will have a delta of
1. Thus the sum will be above one.
Also, a caplet is an option on an individual FRA. Thus you cannot really
bring swaps into this.
You may be confusing swaptions with caps here.
A swaption is an option on a swap.
Regards,
Toyin Akin.
----- Original Message -----
From: "Perissin Francesco" <
[hidden email]>
To: "'Andre Louw'" <
[hidden email]>; "QuantlibUsers (E-mail)"
<
[hidden email]>
Sent: Monday, October 21, 2002 11:13 AM
Subject: RE: [Quantlib-users] RE:Delta on Capfloor
>
> 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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