Cap - Vol Surface Underlying

The Cap underlying can be used in construction of the RATE volatility surface.

 

Cap Configuration

• Create the Rate Index Definition using Configuration > Interest Rates > Rate Index Definitions from the Calypso Navigator.

 

1. Cap Volatility Surface Underlying

Create the underlying instruments in the Volatility Surface Underlying Window, Cap panel.

» Click New to create new volatility surface underlying.

Select the details as described in the table below.

» Click Save to create the underlying. They appear in the table below.

 

The system creates quotes like: "Cap.<currency>.<expiry>.<rate expiry>.<strike>.<rate index>".

Example "Cap.JPY.2D.1Y.0.05.LIBOR.6M.T3750".

 

Fields Details

Field Description

Currency

 Reference index currency.

Index

 Name of the reference index.

Tenor

 Tenor for the reference index.

Source

 Source for publishing the reference index.

Maturity

 Cap/Floor maturity tenor.

Fwd Start

 Start tenor.

Option Type

 Type of option, such as Cap or Floor.

Strike

 Strike in percentage.

Relative ATM

 Select if relative ATM is used.

Frequency

 Frequency code such as QTR, WK, SA.

Date Roll

 Type of date roll such as MOD_FOLLOWING, FOLLOWING.

Holidays

 Calendar used for Holidays.
Exclude First Check to exclude the first caplet. It is included by default.

Create Multiple Strikes

You can click Create Multiple Strikes to create multiple instruments at once by using the Multiple Strikes window.

» Select one or more tenors and move them to the tenor field to the right. To create custom tenors, add a number in the text field, select either Day, Week, Month, or Year in the drop-down list, and click Add Custom Tenor. The tenors are added to the tenor field.
» Under "Strike," add a value and click Add to move the value to the Strike field below.
» To create multiple strikes, select and highlight the preferred tenors and strikes added in steps above, then use the arrow button to move them into the Expiries structure. When the structure is complete, click OK. The multiple strikes are added to the list of underlying instruments on the Cap panel.

 Ⓘ   [NOTE: before creating multiple strikes, make sure to specify other relevant information - such as currency, index, source, option type, date roll, and holidays - on the Cap panel.]

Create Multiple Maturities

You can click Create Multiple Maturities to create multiple instruments.

» Select the frequency, date roll method, and holiday calendars for calculating the dates.
Payment Lag Enter the number of days between the interest date and the payment date, and specify Business or Calendar.
Cmp

Check the Cmp checkbox to enable interest compounding.

» Select the DLY from the adjacent field.
» Double-click the Flat label to toggle between:
– Flat — Flat compounding.
– Spread — Does not apply to fixed rates, only to floating rates.
– SimpleSpread - Does not apply to fixed rates, only to floating rates.
– NoCmp — A cashflow is created at the compounding period without actually compounding the interest.

There is no compounding otherwise.

Id

 Displays the system assigned unique identifier for the Cap volatility surface underlying.