SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
unkpath
Topic Author
Posts: 289
Joined: January 13th, 2004, 8:44 pm

ir roll down, carry & skew

February 4th, 2011, 1:10 am

Are the notions of roll down and carry used a lot for standard interest rate options, in particular swaptions? I think it is possible to define these notions meaningfully for swaptions. Is there a typical connection between curve roll down and option skew? Thanks.
 
User avatar
Martinghoul
Posts: 3256
Joined: July 18th, 2006, 5:49 am

ir roll down, carry & skew

February 4th, 2011, 11:16 am

Yes, it is possible to define these concepts for swaptions. As to curve rolldown and skew, I personally can't think of a worthwhile relationship.
 
User avatar
unkpath
Topic Author
Posts: 289
Joined: January 13th, 2004, 8:44 pm

ir roll down, carry & skew

February 5th, 2011, 4:16 pm

mmh, at times, isn't there some technical effect related to rate roll down? As in a 1y5y ATM receiver swaption in 6m will be a 6m5y OTM under some roll down scenario. How would such effects be backed into the 6M5Y skew, if at all?I guess my question is if this kind of quasi-deterministic dynamic effects are reflected in the skew?
 
User avatar
Martinghoul
Posts: 3256
Joined: July 18th, 2006, 5:49 am

ir roll down, carry & skew

February 5th, 2011, 4:53 pm

As far as my experience goes, no or not to any significant extent.
 
User avatar
gammaslide
Posts: 83
Joined: January 20th, 2010, 7:08 pm

ir roll down, carry & skew

February 9th, 2011, 9:52 pm

Might be missing the point, but for 1y5y atm in 6m becoming 6m5y probably OTM..the risk is managed as plain vega risk, and everyday as time passes and fwd changes,the vega exposure changes while the rho and volvol exposure goes from zero to some value..And further pnl is captured via vol slide daily..i.e. Valuing the portfolio today, and same valuation with T+1Actually i dont think i've made a relevent point..but the above is correct right?
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On