I’m curious to hear your view on what is the most common way a trader nowadays defines the Cap and Swaption Surfaces when pricing a Vanilla Cap or Vanilla European Swaption to a client. The assumption is that the Premium is paid by the client ‘today’ (spot=2d) – and the trade is cleared and based on OIS discounting.
For EUR Caps/Swaptions – for example
- Shifted Log Normal Volatility with Displacement factor
- Normalized Vol (BP-Vol)
- Fwd Premium Cap or Swaption Straddle prices
- Spot Premium Cap or Swaption Straddle prices
- Fwd Starting Cap Prices
- SABR
- more…???
For USD Caps/Swaptions – for example:
- LogNormal Vol
- Fwd Premium Cap or Swaption Straddle prices
- Spot Premium Cap or Swaption Straddle prices
- Fwd Starting Cap Prices
- SABR
- more…???
Thanks,
/Scalper