Shifting the Caplet Volatility Surface

You can shift the overall cap/floor volatility surface up or down. You do this by shifting the underlying caplet/floorlet volatility surface via the Caplet Volatility Surface.

To shift the caplet/floorlet volatility surface you first instruct the system by what percentage to shift the ATM log normal volatility at each tenor. When you apply this change, after shifting each ATM log normal volatility point by the defined percentage the system then adjusts the rest of the caplet/floorlet volatility surface accordingly as well as the cap/floor volatility surface.

Once you have shifted the volatility surface and until you manually instruct the system to remove any changes by clicking the Refresh button, any shift in rates is retained during the current session. That means that if you shift the rates and then later in the same session shift the rates again, this latter shift is added to any previous shift(s) already made in the session.

Whenever you shift the volatility surface, the system notes the total percentage by which you have shifted the yield curve in the current session in both the volatility surface pages, i.e., in both the Caplet Volatility Surface and the Cap/Floor Volatility Surface.

Note that:

To actually save the changes to the volatility surface, for use in the current session, you must click the Accept button.

If you shift the rates down by such an extent that one or more of them will be negative, the system will not implement the defined shift. A message is displayed to this effect.

To shift the volatility surface: