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by Lapsilago
July 19th, 2013, 1:54 pm
Forum: Numerical Methods Forum
Topic: Help - Stochastic Volatility: Broadie and Kaya
Replies: 12
Views: 39122

Help - Stochastic Volatility: Broadie and Kaya

Will have a look soon...
by Lapsilago
July 19th, 2013, 1:54 pm
Forum: Numerical Methods Forum
Topic: MC simulation: how to discount a payoff when the interest rate follows a stochastic process?
Replies: 2
Views: 7694

MC simulation: how to discount a payoff when the interest rate follows a stochastic process?

<t>Hi, first, you have to be sure under which measure you do your simulation. The numeraire associated to this measure is your discount factor. E.g. suppose you use risk neutral measure than your accumulated bank account, i.e. exp(-int_0^T r(s) ds) is your discount factor. Thus, you have to simulate...
by Lapsilago
July 11th, 2013, 9:46 am
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

<t>Hi Yougy60,I do not get your point. What I see what you are doing is to use a Black model for Xt and use a DD model for Yt.In the Black world there is a flat volatility which when Xt seen as a DD it is not! There is skew.Thus, if you get the ATM vol you have to use the ATM strike in both models.....
by Lapsilago
July 10th, 2013, 12:22 pm
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

Another hint when you calibrate the SABR.You have to notice that in the DD setting we already have a skew! Might be an idea to fit SABR such that you hit ATM + Skew around ATM.Best Lapsi
by Lapsilago
July 10th, 2013, 12:20 pm
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

Hi Yougy,Trysigma_{BS} = 2/Sqrt(T) * N^{-1}(beta N(sigma_{DD}*beta*Sqrt(T))/beta+(1-beta)/(2beta))andsigma_{DD}=2/(beta Sqrt(T))N^{-1}(beta N(sigma_{BS}*Sqrt(T)/2)+(1-beta)/2)For me your parameters work fine!Best, Lapsi
by Lapsilago
July 10th, 2013, 6:00 am
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

Hi,you should use the analytic formula not the approx formula in this situation.I wonder if you tried that out. Do you have the analytic formula. Could you give me a hint on the parameter values you use? What is beta and what is the spread?I will look into this issue.Best, Lapsi
by Lapsilago
May 29th, 2013, 3:17 pm
Forum: Numerical Methods Forum
Topic: Heston model - put option price calculated by FFT
Replies: 29
Views: 60596

Heston model - put option price calculated by FFT

I am interested in comparing your result to our stuff which is published in "Financial Modelling" (WILEY)We adjusted COS somewhat. Thus, if you would like I can pm my private email and then you can send your stuff...Ciao Lapsi
by Lapsilago
April 25th, 2013, 3:07 pm
Forum: Programming and Software Forum
Topic: Excel Monte Carlo Addin Speed (or lack thereof)
Replies: 7
Views: 9103

Excel Monte Carlo Addin Speed (or lack thereof)

<t>You should do everything in VBA if you do not care taking C++ or C# or...you should not use worksheet functions (especially not in loops). Avoid Do.. While as much as you can. For a For...Next use For i=... Step 1 CODE Next i. this is faster ;-)If you do drop me a pm I can send you some stuff for...
by Lapsilago
April 25th, 2013, 3:02 pm
Forum: Technical Forum
Topic: Achieving decorrelation (G2++ vs LMM)
Replies: 13
Views: 10294

Achieving decorrelation (G2++ vs LMM)

<t>Hi,I doubt the view of using trees... My favourites are MC and Transform methods. Works for most of the problems. Even using transforms you can do a lot.At least low factor models (Hull-white, G3++) even for Bermudan for multiple strikes and the Greeks are for free. American you can do by Richard...
by Lapsilago
April 24th, 2013, 9:39 am
Forum: Technical Forum
Topic: Achieving decorrelation (G2++ vs LMM)
Replies: 13
Views: 10294

Achieving decorrelation (G2++ vs LMM)

<t>Hi,LMM CAN be used for hybrids! Exotics can be priced via MC but there are efficient approx solutions for Heston equity process and LMM for the rates.Also G2++ can also be used for hybrids. All you have to do for calibration is to approximate using an affine model which can efficiently be handled...
by Lapsilago
April 21st, 2013, 2:32 pm
Forum: Book And Research Paper Forum
Topic: New Book - Financial Modelling
Replies: 7
Views: 14964

New Book - Financial Modelling

Dear all,thanks for all the comments and request. We will soon set up a typos page.Best, lapsi
by Lapsilago
April 21st, 2013, 2:30 pm
Forum: Numerical Methods Forum
Topic: Hurd and Zhou FFT Spread Options
Replies: 4
Views: 22549

Hurd and Zhou FFT Spread Options

Hi,you can use the cos method for spread options but you need the characterisitic function. See the paper by Oosterlee and Ruitjers. Its on Oosterlee's homepage.Best, Lapsi
by Lapsilago
April 21st, 2013, 2:26 pm
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

<t>Hi Yougy,thanks for your hint. I just browsed through some old stuff and saw that the approx formula is not needed since there is a closed form solution for computing the sigma_ATM out of sigma_DD and vice versa. sigma_ATM = 2 / sqrt(T) * N1{-1}(beta^{-1} * N(sigma_DD * beta * sqrt(T) * 0.5) - 0....
by Lapsilago
March 28th, 2013, 1:45 pm
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

<t>Hi,there might be another possibility: First calculate OIS Vol using the formulas for sigma. Then, directly transfer using the new rates and basis spreads which is using xi.In this way you can create a starting point for all non-standard volatilities. Then, you can fine tune the term structure fo...
by Lapsilago
March 21st, 2013, 9:08 am
Forum: Technical Forum
Topic: Libor 3M-6M volatility
Replies: 58
Views: 16290

Libor 3M-6M volatility

<t>Hi Yougy60,sorry for not responding directly. I currently cannot reproduce the eq and the fig you mention since I have a new version where I have an example of calculating the 1m, 3m, 6m and 12m term structures and - as you suggested - go from short to long tenors and vice versa. I have a method ...
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