Hi,
I understand that Exchange Traded Interest Options (USD Libor 3m or Euribor 3m) trade with a lower volatility than the respective Cap or Floor for an equivalent structure.
Can anyone give any colour as to the specific reasons for this? Liquidity / One-Way demand in OTC? And are there any research / papers on this area. Thanks for help.
I understand that Exchange Traded Interest Options (USD Libor 3m or Euribor 3m) trade with a lower volatility than the respective Cap or Floor for an equivalent structure.
Can anyone give any colour as to the specific reasons for this? Liquidity / One-Way demand in OTC? And are there any research / papers on this area. Thanks for help.
