durations of cap and floor

[ajsa]

Hi David,

Could you explain how to calculate the durations of interest cap and floor? (Not sure if these are required)

Thanks.

 

[David Harper CFA FRM]

Hi asja,

Since caplets are options and Greek rho is essentially the same as dollar duration (i.e., rho = dValue/drate), I *think* you can solve for Greek rho under a Black-Scholes Merton application to the caplet/floorlet, but this probably dubiously assumes GBM ... i'd love to add an XLS to the member page, but from here to the exam I need to focus on exam-relevant topics (answer: no, this is afield of 2009 FRM)....thanks, David