Cap/Floor on a SpreadOption grid
Cap/Floor on a SpreadOption grid
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Adel Chakir · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: Adel Chakir
Original post: https://quant.stackexchange.com/questions/60050
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
I have a spread option data from a broker. The rows are the following :
STK
ATM
-0.5
-0.25
... and the values are forward price ( the strikes used are absolute strike and the value of the raw STK is the the forward reference )
I'm trying to partition my data into two parts with respect to the claim type ( Cap / Floor ) but i don't know what criterion should i use ( Assign a claim type "Cap" to positive absolute strikes and "Floor" to the negative ones ) or should I compare the absolute strike to the fwd ref .
Can someone help me please?
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AlRacoon · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: AlRacoon
Original post: https://quant.stackexchange.com/a/60051
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
Not sure exactly how your data looks but you should be able to distinguish whether you have a cap or a floor depending on how the instrument is reacting to increasing and decreasing rates (forwards in your case) for each strike. If the value of the option is increasing in value as interest rates go up, you have a cap (note: this is from the perspective of a long cap position). If the value of a option is increasing as interest rates go down, you have a floor (again from the perspective of a long position).
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Quoted from Forex.com.bd-Editorial External answer — Quantitative Finance Stack Exchange Author: AlRacoon Source score (net votes, not local likes): 1 Original post: https://quant.stackexchange.com/a/60051 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Not sure exactly how your data looks but you should be able to distinguish whether you have a cap or a floor depending on how the instrument is reacting to increasing and decreasing rates (forwards in your case) for each strike. If the value of the option is increasing in value as interest rates go up, you have a cap (note: this is from the perspective of a long cap position). If the value of a option is increasing as interest rates go down, you have a floor (again from the perspective of a long position).
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