Posted by
Xavier.Abulker on
Oct 22, 2002; 2:29am
URL: http://quantlib.414.s1.nabble.com/RE-Delta-on-CapFloor-Final-tp2269p2270.html
Hi Andre,
yes this is better said than me and exactly what you have to do: take the
hedge ratio to know the amount of swap to hedge your cap.
Of course you can also search the amount of "callable bond double knock
in/out barrier" to hedge a cap but this is not standard at all. The most
common is to hedge with the instruments you find in your curve : money
market , futures and swaps.
Bye
Xavier
Andre Louw
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[hidden email] Subject: [Quantlib-users] RE:Delta on CapFloor (Final?)
eforge.net
22/10/2002 09:45
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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