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jvas
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Posts: 1
Joined: January 19th, 2020, 12:41 pm

Vega Hedging with Caps and Floors

January 19th, 2020, 1:09 pm

Hi Friends!

I'd like to know your thoughts on calculating modified Vegas for an interest rate options/cap/floors book in order to take into account the different senstitivities of expirys to changes in the vol curve. On Taleb's Dynamic Hedging, his proposed method of computing Modified Vega based on the forward vols curve is not recommended for eurodollar options, since they are deemed options on non-fungible assets(non-overlapping - page 156). If that's the case for caps and floors as well, how would you tackle computing the modified vega for a book of options? Many thanks for your thoughts.
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