Hi all, I'm trying to calculate the implied vs realised vol ratio for different swaptions across G5 currencies. This works fine for USD and GBP as rates are positive. However I'm struggling with adapting my algorithm to EUR. For the implied vol data I can directly use the quoted normal ATM bpVol by a broker or composite (e.g. TP, ICAP). For the realised ratio however, I'm calculating the basis point equivalent using the standard deviation * sqrt(T) * ATM_Forward. In terms of calculating the standard deviation I can decide between using daily percentage returns or absolute differences as log-returns obviously won't work.
Now every time rates start to approach zero the I/R-vol ratio starts to explode. Then, finally as rates dip below zero the annualised bpVol goes negative (as I'm multiplying by the ATM forward), which then makes the I/R vol - ratio negative.
My questions are:
a) is my approach wrong and
b) is there any other way to get a bpVol equivalent for realised volatility? The only other solution that came to mind is using shifted Black volatilities (I need to check if I can get those...) and %-realised vol.
Thanks