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Finding Caplet Implied Volatility from Cap and Swaption Data

Article Quant Q&A · Author: Brian Smith
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Summary

The document explains how to locate or derive caplet implied volatilities for EUR Libor. Bloomberg’s VCUB displays cap volatility and market inputs, while caplet volatilities can be obtained by stripping cap quotes into their component periods. The answer also describes viewing caplet vols in a Bloomberg swap pricing workflow and notes that caplet pricing relates to swaption volatility for a matching expiry, tenor, and strike.

The discussion points to Bloomberg terminal sources and ICAP contributor data, but access requires suitable licensing. It cautions that data-use terms may restrict sharing or publishing derived figures. EUR conventions add complexity: caps may reference three-month rates at shorter maturities and six-month rates at longer ones. The document offers pointers rather than a complete stripping procedure, and availability and terminal navigation may change over time.

Key ideas

  • Cap quotes combine a sequence of caplets, so individual caplet volatilities can be extracted by stripping.
  • Bloomberg VCUB provides cap volatility inputs and documentation about cap stripping.
  • Caplet pricing is related to swaption volatility for corresponding expiry, tenor, and strike.
  • Bloomberg and broker data access depends on licensing, which can restrict redistribution.
  • EUR cap conventions may switch from three-month to six-month reference periods by maturity.

Tags

Fixed incomeVolatilityOptionsDerivatives pricing
Full text
# Where can I find caplet implied volatility data?


# Where can I find caplet implied volatility data?












I am looking for caplet implied volatility data for `Libor-EUR`. Is there any online data base etc. available to get such data? Does `Bloomberg` offer this data?

Any pointer will be highly appreciated.

Many thanks,

## Answer by AKdemy (score 4)

https://quant.stackexchange.com/a/65600

`VCUB` will not show caplet vol but shows cap vol (as one of the inputs). Caplets are a sequential series of interest rate options (that together form the cap). You need cap stripping to extract the volatilities of individual caplets implied by the quotes of the caps that consist of them. Do you really need the caplets directly?

Since you have access to BBG - you can look at `HELP VCUB` - "Documents" for the "Bloomberg Volatility Cube" white paper. It explains cap stripping on P.9 onwards.

To directly see the caplet vols for a given cap, you can run `SWPM -CAP EUR` - click on the "cashflow" tab - you see a column called "Cap Vols". The main tab only shows the cap vol itself, that it is the flat vol which, when used as optlet vol in cap pricing, gives the deal the same premium. Caplet pricing uses swaption vol since each optlet can be seen as a one period swaption. So caplet vol is swaption vol (for given expiry and swap end as well as strike). Same for US

This also explains why the scenarios on `SWPM` and `MARS` (defined in `SHOC`) only shift the "interest rate vol" and not cap vol (hence the stripped `VCUB` vol). With EUR, you generally have an additional issue, because the Euro market trades caps as 3m-based below 2y maturity and 6m-based thereafter.

ICAP data can also be found on the terminal by typing `VOLS` in the command line - "25 ) Caps/Floors Vols" (at the time of writing). There are several contributor pages on `CTRB` - e.g. Tullett Prebon -> Int Rate Volatility -> Spot Caps -> Norm Vol -> EUR vs 6m -> Digital `GDCO 3096 4` for the (current) direct link.

## Answer by David Duarte (score 2)

https://quant.stackexchange.com/a/65592

If you have a Bloomberg terminal, you can lookup vols for different currencies and indexes with the `VCUB` function, where you can check the raw market input data and the surface construction parameters (vol type, interpolation, calibration, tenors, etc) and output.

You will have to have a Bloomberg licence because they don't really "offer" this data for free. Also, you'll have to be careful will what you do with the data, because the normal licence includes the data for personal use and you cannot share this data or, in some cases, produce numbers based on the data to publish to others.

There are also data licensed to have access to data only. Bloomberg has this but probably also brokers like ICAP.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.