In the HJM libor caplet value, because the volatility of the forward rate changes over the caplets

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In the HJM libor caplet value, because the volatility of the forward rate changes over the caplet’s life, what volatility is input into the formula? How does this differ from the volatility input into the BSM model for an equity option?

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An Introduction to Derivative Securities Financial Markets and Risk Management

ISBN: 978-0393913071

1st edition

Authors: Robert A. Jarrow, Arkadev Chatterjee

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Question Posted: Dec 02, 2015 04:03 AM

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In the HJM libor caplet value, because the volatility of the forward rate changes over the caplets

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The average forward rate volatility over the life of the caplet is input into the ...View the full answer

An Introduction to Derivative Securities Financial Markets and Risk Management

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