Class DirectIborCapletFloorletVolatilityCalibrator

  • public class DirectIborCapletFloorletVolatilityCalibrator
    extends Object
    Caplet volatilities calibration to cap volatilities.

    The volatilities of the constituent caplets in the market caps are "model parameters" and calibrated to the market data under the penalty constraint. The penalty is based on the second-order finite difference differentiation along the strike and expiry dimensions.

    If the shift curve is not present in DirectIborCapletFloorletVolatilityDefinition, the resultant volatility type is the same as the input volatility type. e.g., Black caplet volatilities are returned if Black cap volatilities are plugged in, and normal caplet volatilities are returned otherwise. On the other hand, if the shift curve is present in DirectIborCapletFloorletVolatilityDefinition, Black caplet volatilities are returned for any input volatility type.

    The calibration is conducted once the cap volatilities are converted to cap prices. Thus the error values in RawOptionData are applied in the price space rather than the volatility space.