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V_ATVO1_V2 - Define Volatility Type

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Create volatility types for volatilities. Volatilities are used in the NPV calculation of options and value-at-risk calculations.

Based on market data or scenario data, you enter the actual volatility values in the application. You assign volatility types within the valuation types.

A volatility curve for the interest rate for the relevant term and that is appropriate for the cap must be assigned to a dollar cap (for example, 6-M-LIBOR).

1. Enter a technical name and a description for the volatility type.
2. Assign a volatility price type to the volatility type.
3. For caps and floors, set the indicator that defines whether the volatility is interpreted as a single value or as an average value.
4. Set the Statistical Calculation Type indicator, if you use the volatilities for value-at-risk calculations.
5. Choose the Moneyness Definition that you would like to use. This setting is relevant for the NPV calculation of options.

Note:

• If you do notassign a moneyness definition here, the system performs the calculation with M:=(X-S)/S (except for average cap/floor volatilities and for Hull-White volatilities where the system performs the calculation with M:=X).

• In the case of Hull-White volatilities, the system always performs the calculation with M:=X, regardless of the moneyness definition assigned to the volatility type.

1. Save your entries.

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