February 13th, 2002, 7:58 am
Hello Athletico:
Thank you very much for your answer. My questions are:
QUESTION 1
In CAP Pricing page there is a button (FLAT VOLATILITY OFF/ON). I understand that if I press the button and change the option to “FLAT VOLATILITY ON” writing a volatility of XXX, Panorama will forget the cap volatility curve and will use this "forced" XXX volatility in all the caplets and floorlets. Am I right? I ask you this because, when I do that, nothing happens; I can change FLAT volatility from 1 to 100 that the PV does not change, neither the field "Fwd Vol" in Cap Cashflows page.
I do not know if I misunderstand the concept, or if this option could not function in general or ...
About the Flat Vol Off/on button, the manual says literally “Normally the volatility used to price cashflows is obtained from either the cap volatility surface (for LIBOR rates) or from the swaption volatility surface (CMS rate). However, it is also possible to override the implied volatility from the surface with a “flat” volatility, which is applied to all cashflows”
QUESTION 2
In a Swap plain vanilla, in Pricing page, the field “rate” gives:
- The fixed rate which make zero de Present Value of the Swap (if we are looking at the fixed side of the Swap)
- The spread (in basis points) which make zero de Present Value of the Swap (if we are looking at the floating side of the Swap).
I do not have problems with the firs point, but when I put the spread that Panorama gives in the rate field, the PV is not zero (in fact when I replicate the numbers in excel I obtain a better answer, I mean I obtain a spread which gives a PV almost zero).
It would be an easy point and I do not know why it doesn’t function.
Well, if you have developed an application similar to Panorama you are light years far from my knowledge. Thank you “ a priori”
yolanda