Question: As a quant for a bank, you've noticed that the constant maturity forward rate curve (estimated as a simple rate) has stochastic volatility. You are

As a quant for a bank, you've noticed that the constant maturity forward rate curve (estimated as a simple rate) has stochastic volatility. You are asked by your manager to price caplets with an HJM Libor model using an implicit volatility, which is also stochastic across time.

Is it OK to use this model to price the caplets? Why or why not? Explain

Is it OK to use the delta from this model with implied volatilities to hedge the caplet's interest rate risk? Why or why not? Explain.

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