<t>I think rather than pure IR model choice it is more dependent on choice of vol type in IR model. SABR /CEV will be able to handle it but no model understand high or low rates .It is upto user to calibrate it by shifting BETA.In a given term structure, if one wants short tenor points to ave lognor...

Thanks gc, For point 2 and point 3Regards

<t>Hi Donal,As i understand from description, CP has right to exercise forward on any day within specified time window.For this i think best solution is slightly modified version of LSMC( Longstaff Swartz Monte Carlo) because in this MC pricing you need to compare continuation value with intrensic v...

Are you pointing at UK INFLATION INDEX BONDS?Regards

<t>Hi,I think when we have option for which we have underlying as stock then we introduce volatility of stock to produce desired distribution of underlying in Monte Carlo.As in this case we are looking at volatility as underlying ,in mnte carlo based framework we need to introduce VolVol here.Thus u...

HiExposure is always reported in domestic currency.For example for European bank Domestic currency is Euro whereas for US based bank domestic currency is USD.Thus exposure calculation would be different if you are European bank Vs.US based bank.Regards,

<t>PFE which is -ve number carries no credit risk and is of least worry from credit risk perspective.CCE may be -ve number and is always looked on as today's number.PFE may be -ve and may be similar to CCE on Day 0 today but may turn/explode to big + ve number in next tenor buckets( maybe 90d,365d t...

<t>Hi,Which vol is getting used to simulate underlying?( One static flat vol?).For MC based simulation for this kind of Target vol product, i would suggest to go ahead with stochastic vol model which will allow to factor in correlation, volofvol also.It need calibration of model parameters for time ...

<t>Hi,I realised that there are to ways for Beta calibration across time maturities1.Calibrate beta using either Log-log plot or LV, on each and every time point.Thus we might have different values of all four parameters in SABR calibration on each and every time point.2.But some brokers calibrate B...

<t>Thanks Prodipto,i use deduced LV ( so called CEV) for beta and retain same initial vol in CEV & SABR.Then calibrate correlation and volvol . But recently while benchmarking with bloomberg realised that they dont use corelation in VCUB-SABR. I mean they use correlation=0 across all time points...

Thanks FrenchX for reference to using log-log plot for beta estimation. Currently i am trying to calibrate beta in a way in which i restrict correlation and volvol to zero then use SABR expansion to have estimate of beta.please provide comments on accuracy of this way for guessing beta.

<t>Hi all,I am trying to calibrate SABR for Cap floor and swaptions.For Beta Initial guess as per G.West paper Log-log plot can be used to derive beta value using historical data.But i use a method where in SABR Expansion i restrict corelation and volvol to Zero.I think it becomes local vol model th...

<t>Thanks gc.For Calibration purpose i will use swaption stangles,risk reversal quotes but how brokers intituively gauge changes in volatility of forward swap rate for OTM Strikes?I mean based on which logic broker quotes of vols for OTM swaption ( beyond 1y in option term ) changes?Regards,Qmarting...

<t>Hi All,I am trying to calibrate swaption skew in SABR and struggling with choice of 2 approaches1. Using swpation strangles, risk reversals,straddles for calibration.2.retain skew from cap/floor and use same skew for swaptions using ATM Swaption vol as reference vol point on curve. ( which is sug...