- April 16th, 2018, 1:15 pm
- Forum: Programming and Software Forum
- Topic: Anyone getting into Rust
- Replies:
**30** - Views:
**4033**

It has some nice features, but so do other mainstream languages. It's in VS2015. It has ADT, what most mainstream languages don't. As an OCaml developer, it is a must have feature ;) It is also supposed to handle first-class functions (when I looked into the language (at his alpha stage), it was no...

- October 20th, 2017, 11:53 am
- Forum: Student Forum
- Topic: Fixing mean reversion parameter in the 1F HW model
- Replies:
**4** - Views:
**1428**

I'm not too experienced in rates derivatives, so thanks VivienB for adding the nuance / correction! In your opinion then, for the more vanilla derivatives such as swaptions, short rate models are preferable to market models? For the vanilla such as swaptions or caps/floors, a market model with clos...

- October 17th, 2017, 8:21 am
- Forum: Student Forum
- Topic: Fixing mean reversion parameter in the 1F HW model
- Replies:
**4** - Views:
**1428**

At risk of stating the obvious: the LMM model and its generalizations might be a better choice for modelling / pricing rates derivatives. Not really obvious. It really depends on what you want to price. Furthermore LMM models have a lot of drawbacks: slow calibration and pricing, the correlation st...

- August 10th, 2017, 4:07 pm
- Forum: Numerical Methods Forum
- Topic: Listed option IV curve
- Replies:
**36** - Views:
**5428**

I tried to fit the raw SVI with the Quasi Explicit Method by Zeliade. The parameters turned out to be too unstable for reference use in real trading (though the model does fit well). The problem seemed to be that there are too many local min's when using iterations in the second step to get the opt...

- February 23rd, 2017, 5:41 pm
- Forum: General Forum
- Topic: Building a swaption implied volatility surface from ATM quotes only using SABR model.
- Replies:
**8** - Views:
**1362**

How do you calibrate the SABR model if you have only ATM swaptions? Btw, in the current market situation (i.e. small rates / negative rates), if I had only ATM swaption vols, I would use a Hull-White with a piecewise constant volatility term structure model to extrapolate the vols. You have a close...

- February 23rd, 2017, 4:09 pm
- Forum: General Forum
- Topic: Building a swaption implied volatility surface from ATM quotes only using SABR model.
- Replies:
**8** - Views:
**1362**

How do you calibrate the SABR model if you have only ATM swaptions?

Btw, in the current market situation (i.e. small rates / negative rates), if I had only ATM swaption vols, I would use a Hull-White with a piecewise constant volatility term structure model to extrapolate the vols.

Btw, in the current market situation (i.e. small rates / negative rates), if I had only ATM swaption vols, I would use a Hull-White with a piecewise constant volatility term structure model to extrapolate the vols.

- January 20th, 2017, 9:22 am
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

You're welcome!

I use the approximation proposed in the Andersen, Piterbarg's book, ie I compute [$]y[$] as if [$] \forall t, x(t) = 0[$]. Then [$]\bar y'(t) = (\alpha^2 - 2\chi \bar y(t)), \bar y(0) = 0 \Rightarrow \bar y(t) = \alpha^2 \frac{1 - e^{-2\chi t}}{2\chi}[$] (ie the same as you).

I use the approximation proposed in the Andersen, Piterbarg's book, ie I compute [$]y[$] as if [$] \forall t, x(t) = 0[$]. Then [$]\bar y'(t) = (\alpha^2 - 2\chi \bar y(t)), \bar y(0) = 0 \Rightarrow \bar y(t) = \alpha^2 \frac{1 - e^{-2\chi t}}{2\chi}[$] (ie the same as you).

- January 19th, 2017, 4:51 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

With some delay, I made a try on a 20y, 0.5% annual vs E6M swap, with the parameters we agreed on, for different mean reversions. Theoretical price: 921bps. [$] \begin{array}{|c|c|} \hline \chi & price (bps)\\ \hline 10\% & 921\\ 5\% & 921\\ 1\% & 918\\ 0\% & 919\\ -1\% & 919\\ -5\% & 927\\ -6\% & 9...

- January 18th, 2017, 4:53 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

This heuristic has been made directly on the SDE, not on the corresponding PDE. It's a classical "drift freezing" method. Obviously, some properties are broken with this approximation, otherwise we wouldn't misprice a swap (this approximation breaks the fitting of the initial yield curve, because b...

- January 17th, 2017, 1:42 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

It is not surprising that a naive numerical method fails with negative mean rev, as it implies diverging process, then it probably require a more robust / cleaver numerical method to use. To continue with your analogy, there are similar effect with the heston pde when the Feller condition is violate...

- January 17th, 2017, 12:40 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

This heuristic has been made directly on the SDE, not on the corresponding PDE. It's a classical "drift freezing" method. Obviously, some properties are broken with this approximation, otherwise we wouldn't misprice a swap (this approximation breaks the fitting of the initial yield curve, because by...

- January 14th, 2017, 1:52 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

I'll give a try on Monday with small values of the mean rev (and negatives). The results I gave were still for a small mean reversion (between 0% and 1%, but can't tell you exactly how much). When the mean rev is negative, it is not surprising to have bad results for long maturities, as in this case...

- January 13th, 2017, 3:55 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

Oups sorry there is a typo. I'll edit the formula.

- January 13th, 2017, 2:01 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

The model is: [$] dx(t) = [y(t) - \chi x(t)] dt + \sigma(t, x(t)) dW(t)\\ dy(t) = [\sigma(t, x(t))^2 - 2\chi y(t)] dt\\ x(0) = y(0) = 0\\ \sigma(t, x) = \alpha(t) + \beta(t)x\\ r(t) = f(0, t) + x(t) [$] Then, the pricing pde is [$] \partial_t v(t, x, y) + \frac{\sigma(t, x)^2}{2}\partial^2_x v(t, x,...

- January 13th, 2017, 12:29 pm
- Forum: Numerical Methods Forum
- Topic: Cheyette Unstability in PDE
- Replies:
**42** - Views:
**10505**

Hi, I just tried on a 20y EUR swap, pay 1%, receive EURIBOR 6M, with data as if 2017-01-06, no multi curve, and got: Market swap price = 399.97bps Pde qG price (grid size = 51, time step = 50days) = 396.80bps Pde qG price, vols + 10 vol points: 397.16bps Are these bad results for you? What formula d...

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