How is the industry dealing with European cash settled swaption now? Anybody had a try of the paper of "two collars and a free lunch"?

https://papers.ssrn.com/sol3/papers.cfm ... id=2686622

Did you try to reproduce the results in the paper?

How is the industry dealing with European cash settled swaption now? Anybody had a try of the paper of "two collars and a free lunch"?

Does the industry still use SABR to calibrate a cap/floor spot vol surface under the current low rate environment?

QuoteOriginally posted by: pcaspersfig 3What is your forward value? For me, when \gamma = 1.7, the vols at the right side are slightly bigger than the ones in the paper.Other things are fine.

<t>QuoteOriginally posted by: pcaspersI compared the expansion and the dupire fd pricing against the exact solution (produced with the usual backward pde). Of course there are differences between these three. Smaller ones and bigger ones. No surprise. It depends on what you want to do, but for an ar...

How much did you shift?

Has anybody done a shift on this approach to cover negative rates?

Is this used by any bank, maybe Danske bank, but besides that, anyone knows if other banks have implemented it as well?

Negative Probabilities in Financial ModelingJust had a look at this paper, in the last paragraph, page 19, it is mentioned the initial current value of the interest r needs to be shifted if using shifted lognormal. I do not get why we need this shift. Did anyone read this paper too?