TY - JOUR T1 - Factor Dependence and Estimation Risk for Cap-Related Interest Rate Exotics JF - The Journal of Fixed Income SP - 74 LP - 83 DO - 10.3905/jfi.2006.627842 VL - 15 IS - 4 AU - Jeroen Kerkhof Y1 - 2006/03/31 UR - https://pm-research.com/content/15/4/74.abstract N2 - In this article the author presents the (stationary) bootstrap as a method to take estimation risk into account when computing exotic interest rate derivatives prices. This provides traders and risk managers with a price range of values for the exotic product contrary to a single estimate. It was found that this estimation risk is very much product dependent. Autocaps, sticky caps, and especially ratchet caps are very sensitive to correlation resulting in considerable price ranges for these products. For some products risk managers are advised to set reserves up to the price of the product.TOPICS: Options, interest-rate and currency swaps ER -