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by IRhunter
May 9th, 2017, 3:17 pm
Forum: Technical Forum
Topic: Pricing Digital Options with Normal Model
Replies: 12
Views: 1756

Re: Pricing Digital Options with Normal Model

 Ok, I tried. So, can someone in this forum correct it please? Thank you in advance.
by IRhunter
May 7th, 2017, 4:02 pm
Forum: Technical Forum
Topic: Pricing Digital Options with Normal Model
Replies: 12
Views: 1756

Re: Pricing Digital Options with Normal Model

Hello again, and sorry for the late response. So the value of the d should be: d=( F-K )/( sigma*sqrt(T-t) ), for the call option (digital) d= ( K - F )/( sigma*sqrt(T-t), for the put option (digital) and the final price of each of the above should be Discount Factor * N(d). Alan, do you agree with ...
by IRhunter
April 19th, 2017, 9:18 am
Forum: Technical Forum
Topic: Pricing Digital Options with Normal Model
Replies: 12
Views: 1756

Re: Pricing Digital Options with Normal Model

Thank you very much for your help.   With the new variable that you have proposed the function inside the integral becomes the standard normal pdf so I may compute it. Could you please be kind and let me double-check what is the value of "d" that I should put now at the normsdist function...
by IRhunter
April 18th, 2017, 8:50 am
Forum: Technical Forum
Topic: Pricing Digital Options with Normal Model
Replies: 12
Views: 1756

Re: Pricing Digital Options with Normal Model

Hello Alan, Thank you very much for your answer. I am using to normal dynamics as they are described at the paper that i quoted at my first post, in order to value a trading book containing swaptions and caps. dF = μ dt + σ dW t Reuters is quoting normal volatility both for caps and for swaptions i...
by IRhunter
April 13th, 2017, 7:47 am
Forum: Technical Forum
Topic: Pricing Digital Options with Normal Model
Replies: 12
Views: 1756

Pricing Digital Options with Normal Model

Hello, In the following paper: Analytic Formula for the European Normal Black Scholes Formula, by Kazuhiro Iwasawa, December 2, 2001 at pp1-2 a closed formula for pricing call and put options (where the underlying asset has normal dynamics) is provided.I would like to kindly ask if anybody could pro...
by IRhunter
December 8th, 2016, 11:59 am
Forum: Trading Forum
Topic: Mid Curve Options VS Swaptions
Replies: 11
Views: 10316

Re: Mid Curve Options VS Swaptions

I got the paper. Thank you.
by IRhunter
December 7th, 2016, 2:13 pm
Forum: Trading Forum
Topic: Mid Curve Options VS Swaptions
Replies: 11
Views: 10316

Re: Mid Curve Options VS Swaptions

My next question would be about the pricing. Apparently, there are not implied volatility quotes for mid curve options. You have to infer them using the vols from vanilla swaptions. Do you have any paper to suggest me regarding the pricing of mid curve options? Ps: I think that back in 2010 in anot...
by IRhunter
December 7th, 2016, 11:20 am
Forum: Trading Forum
Topic: Mid Curve Options VS Swaptions
Replies: 11
Views: 10316

Re: Mid Curve Options VS Swaptions

Thank you for your answer Martinghoul. I know that my two examples have the same market view (underlying up, vol up). My question has to do with the delta of midcurve relatively to the vanilla one. Do i have the same DV01 exposure there? Same question to the vol exposure at the mid curve, what is it...
by IRhunter
December 7th, 2016, 10:19 am
Forum: Trading Forum
Topic: Mid Curve Options VS Swaptions
Replies: 11
Views: 10316

Re: Mid Curve Options VS Swaptions

Could you please be more specific? If you buy the vanilla swaption, your market view should be that the 20y swap rate will go up and its volatility will also go up.
What about the mid curve option. What market view should u have in order to enter to this trade.
Thank u.
by IRhunter
December 7th, 2016, 8:22 am
Forum: Trading Forum
Topic: Mid Curve Options VS Swaptions
Replies: 11
Views: 10316

Mid Curve Options VS Swaptions

I would like to compare the two following trades in terms of Delta and Vega exposure on the swap curve. 1.        6m20y swaption, ie an option on the 20y swap rate which expires in 6 months. 2.        6m10y10y mid curve option, ie an option on the 10y swap 10y forward which expires in 6 months. Delt...
by IRhunter
March 16th, 2016, 9:57 am
Forum: Technical Forum
Topic: Normal Model & Sabr parameters
Replies: 3
Views: 2396

Normal Model & Sabr parameters

<t>Thank you for the paper logos01. Could you please indicate if the normal cubic polynomial is the formula 38? I am a little bit confused as the formula contains beta, which is supposed to be zero as we are at the Normal Case of SABR. I would greatly appreciate it if Alan could also make a short co...
by IRhunter
March 9th, 2016, 1:56 pm
Forum: Technical Forum
Topic: Normal Model & Sabr parameters
Replies: 3
Views: 2396

Normal Model & Sabr parameters

<t>Hello,At pp7 of the well known paper of Graeme West : "Calibration of the SABR model in illiquid markets", we find the cubic that we need to solve to get alpha parameter from ATMvol (assuming that we have already solved rho and u through daily calibration) .This is very important tool as it allow...
by IRhunter
October 23rd, 2014, 6:50 pm
Forum: General Forum
Topic: PCA interest rate swap butterflies
Replies: 7
Views: 9663

PCA interest rate swap butterflies

Hello Martinghoul, could you pls email me that doc alsoThank you so much.
by IRhunter
August 16th, 2012, 11:37 am
Forum: Technical Forum
Topic: SABR approximations - best practice?
Replies: 105
Views: 73027

SABR approximations - best practice?

<t>Hello to everyone,I am using SABR formula (original), as an interpolation tool to price a book of swaptions. As the swaptions do not have long expires, SABR is really convenient. I tried recently to use SABR to price a book with CMS caps/floors ext with longer maturities and I face the usual prob...
by IRhunter
August 10th, 2012, 6:06 am
Forum: Technical Forum
Topic: Convexity Adjustment with SABR dynamics
Replies: 1
Views: 12255

Convexity Adjustment with SABR dynamics

Have not seen this threat: SABR approximations - best practice?