The Cap/Floor Volatility Surface displays the volatility surface for caps and floors.
The volatility surface consists of mid-market implied volatilities for caps/floors. These are calculated from the caplet/floorlet volatility surface.
It includes the following data:
Vol %
Vol % is the log normal volatility, which denotes the extent to which the returns of the underlying is expected to fluctuate in a given time period.
Given observed prices the log normal volatility as presented in the volatility surface is the implied log normal volatility calculated from the option’s observed price using the Black-Scholes model.
Normal Vol
Normal Vol shows the expected future fluctuations in terms of basis points rather than in terms of the logarithmic returns. That is, it is calculated on pure sample data that is assumed to be normally distributed.
This volatility is also referred to by market practitioners as the “bp Vol”.
The building of the caplet/floorlet surface involves a multi-dimensional minimization of pricing errors obtained by fitting individual caplet/floorlet smiles at pillar expirations. The minimization is to market volatilities/prices from multiple strikes and tenors.
The data presented in these pages is obtained from multiple data sources. Initially when you open the page the real-time market data is displayed. However, the data displayed is not updated automatically.
The Cap/Floor Volatility Surface is accessed by:
Clicking the Vol/Price Surfaces tab > Caps/Floors tab on the left-hand menu.
On the ribbon bar in the Trader tab or the Market Data tab clicking the Vol/Price Surfaces button and then Caps/Floors.
From the Open button > Vol/Price Surfaces > Caps/Floors.
The following topics are covered:
Fields & Buttons in the Cap/Floor Volatility Surface
What Can be Done in the Cap/Floor Volatility Surface?
Customizing the Volatility Surface