Is this volatility the "thing" you want to use as argument of BlackScholes / Black / Bachelier formulas for option pricing? Implied volatility term structures are often a bit different from those estimated from historical data. Anyway what  you need is a time series model with some dynamics for the ...

Wait, you're saying it's fruitless to compare apples and oranges?

Juicy question =)

lePiddu any chance you can DM me ?

Surem, why not? =)

@billy524  Totally agree with @frolloos. As long as the assumptions on which your model is based are met, the model is correct  by definition.  You may be interested in what happens when some assumptions are violated . You are going to need a measure of the "performance" achieved by your model and f...

Thank you all for your replies, I'll try to cover some questions: @frolloos Or are the govie futures not on the same underlying govie as your option? That's precisely the problem . Govie futures underlying is the so called "cheapest to deliver" (CTD) bond. I'd say that, if the underlying of my otc b...

Hello everyone, I'm working on government-bond options pricing (Black-Scholes world, nothing fancy). In EUR, that's pretty much a "non market" in the sense that there's pretty much no quotes, so no implied vols, no bid-offer spreads, no term structure... Well, nothing on bonds, but something on govi...

Wait, you're saying it's fruitless to compare apples and oranges?

Juicy question =)

If one compares an apple to an orange there should be no surprise that they're not the same.  When talking about swaptions, one is naturally interested in the behaviour of forward-starting par rates corresponding to the swaptions in question. I think that is the point you are making. Given a comple...

“ As you approach the maturity of a swaption, the points of the yield curve that forms the swap rate  are not fixed.  Those points start sliding toward time=0.”   How is aging of bespoke swaps relevant when one is dealing with the implied vols of ATM par swap rates that are quoted as a constant mat...

I do believe your approach is wrong: you are treating forward swap rates (the underlying of a swaption priced using BlackScholes/Bachelier formulas) as they were equity.  Swap rates are (sort of) averages of points in a yield curve. Therefore, the "shocks" that generates volatility are applied to th...

Hi Austrarian, I just want to add my 2c! Go for Riccardo Rebonato's books. All of them , especially the evergreen Volatility and Correlation (2nd edition) and the amazing Portfolio Management under Stress.  I understand you are trying to build some knowledge to find your way in financial markets. We...

Totally agree with tw, competition is crucial. Althougha as far as I know, EUR market for Bermudan is not too wide, I always match with the same 3 or 4 counterparties.  As for collateral (again as far as I know) bermudans are all bilateral, therefore we both report our MTM to each other and start "l...

Frolloos is totally right: the final price depends on many factors. I would also add that it depends also on the "internal rules" of the bank: for some trades you cannot charge more than x times the Vega + y times the Delta of an option. This is especially true when the instrument is part of some st...

Pick up the old ML paper. I can send, ping me.

hi mtsm! I pm'd you but I couldn't receive an answer. Anyway I don't know what paper are you referring to, can you provide a reference? 

Thank you very much in advance!

Hi Amin,

I noticed you have an enormous amount of posts, also dating back some years.

Can you summarize what you are doing (in a very brief post)? I'm a bit curious but I really do not want read everything.

Thanks  in advance.

Hi everyone! I have a very "simple" question but I think the answer is not completely straightforward: "What historical volatility would you compare to the implied volatility of a standard Swaption (priced with Black-76 formula)?" That is, totally disregarding how to estimate the volatility (in the ...