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prodiptag
Posts: 124
Joined: September 12th, 2008, 4:41 pm

CMS replication

December 29th, 2010, 6:24 pm

not sure exactly what your question is, nevertheless, you can take a cms caplet at K to be a portfolio of payers with most of notionals concentrated at K, and a CMS cap as a bunch of these. From then on you can apply your understanding of BS to figure out the gamma exposure - like , all things equal, gamma will be larger for a caplet if the 10y fwd for that caplet is near K, and also all things equal, gamma will be larger for near expiry caplets.
 
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ZX
Posts: 47
Joined: September 10th, 2010, 8:52 am

CMS replication

December 30th, 2010, 8:00 am

QuoteOriginally posted by: piterbarga dealer would hedge cms using options bought from other dealers and as such, collateralized. so no CVA on the hedgeI thought some desks provision CVA even in the presence of CSA (why?) and even more so when CSA is one way.Moreover, surely Basel 3 provisions for collateralised CVA, and surely the charge is far from being negligible? Thoughts?
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