RE:Delta on CapFloor (Final?)

Posted by Andre Louw-2 on Oct 22, 2002; 1:35am
URL: http://quantlib.414.s1.nabble.com/RE-Delta-on-CapFloor-Final-tp2269.html

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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