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by lePiddu
February 20th, 2020, 5:01 pm
Forum: General Forum
Topic: Creating volatility term structure
Replies: 2
Views: 3499

Re: Creating volatility term structure

Is this volatility the "thing" you want to use as argument of BlackScholes / Black / Bachelier formulas for option pricing? Implied volatility term structures are often a bit different from those estimated from historical data. Anyway what  you need is a time series model with some dynamics for the ...
by lePiddu
February 17th, 2020, 8:10 am
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 4097

Re: Implied/Realised Volatility Ratio for Negative Rates?

Wait, you're saying it's fruitless to compare apples and oranges?
Juicy question =)
lePiddu any chance you can DM me ?
Surem, why not? =)
by lePiddu
February 12th, 2020, 8:17 am
Forum: Technical Forum
Topic: option delta
Replies: 13
Views: 4166

Re: option delta

@billy524  Totally agree with @frolloos. As long as the assumptions on which your model is based are met, the model is correct  by definition.  You may be interested in what happens when some assumptions are violated . You are going to need a measure of the "performance" achieved by your model and f...
by lePiddu
February 6th, 2020, 11:23 am
Forum: Technical Forum
Topic: Hedging with a different underlying - bond options case
Replies: 3
Views: 2836

Re: Hedging with a different underlying - bond options case

Thank you all for your replies, I'll try to cover some questions: @frolloos Or are the govie futures not on the same underlying govie as your option? That's precisely the problem . Govie futures underlying is the so called "cheapest to deliver" (CTD) bond. I'd say that, if the underlying of my otc b...
by lePiddu
January 30th, 2020, 11:36 am
Forum: Technical Forum
Topic: Hedging with a different underlying - bond options case
Replies: 3
Views: 2836

Hedging with a different underlying - bond options case

Hello everyone, I'm working on government-bond options pricing (Black-Scholes world, nothing fancy). In EUR, that's pretty much a "non market" in the sense that there's pretty much no quotes, so no implied vols, no bid-offer spreads, no term structure... Well, nothing on bonds, but something on govi...
by lePiddu
January 30th, 2020, 10:07 am
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 4097

Re: Implied/Realised Volatility Ratio for Negative Rates?

Wait, you're saying it's fruitless to compare apples and oranges?
Juicy question =)
by lePiddu
January 30th, 2020, 10:06 am
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 4097

Re: Implied/Realised Volatility Ratio for Negative Rates?

If one compares an apple to an orange there should be no surprise that they're not the same.  When talking about swaptions, one is naturally interested in the behaviour of forward-starting par rates corresponding to the swaptions in question. I think that is the point you are making. Given a comple...
by lePiddu
January 28th, 2020, 5:37 pm
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 4097

Re: Implied/Realised Volatility Ratio for Negative Rates?

“ As you approach the maturity of a swaption, the points of the yield curve that forms the swap rate  are not fixed.  Those points start sliding toward time=0.”   How is aging of bespoke swaps relevant when one is dealing with the implied vols of ATM par swap rates that are quoted as a constant mat...
by lePiddu
January 28th, 2020, 2:15 pm
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 4097

Re: Implied/Realised Volatility Ratio for Negative Rates?

I do believe your approach is wrong: you are treating forward swap rates (the underlying of a swaption priced using BlackScholes/Bachelier formulas) as they were equity.  Swap rates are (sort of) averages of points in a yield curve. Therefore, the "shocks" that generates volatility are applied to th...
by lePiddu
January 27th, 2020, 10:52 am
Forum: Student Forum
Topic: Practice to theory (Students)
Replies: 11
Views: 4163

Re: Practice to theory (Students)

Hi Austrarian, I just want to add my 2c! Go for Riccardo Rebonato's books. All of them , especially the evergreen Volatility and Correlation (2nd edition) and the amazing Portfolio Management under Stress.  I understand you are trying to build some knowledge to find your way in financial markets. We...
by lePiddu
January 22nd, 2020, 4:56 pm
Forum: Technical Forum
Topic: how exactly do traders determine prices
Replies: 8
Views: 3670

Re: how exactly do traders determine prices

Totally agree with tw, competition is crucial. Althougha as far as I know, EUR market for Bermudan is not too wide, I always match with the same 3 or 4 counterparties.  As for collateral (again as far as I know) bermudans are all bilateral, therefore we both report our MTM to each other and start "l...
by lePiddu
January 22nd, 2020, 11:59 am
Forum: Technical Forum
Topic: how exactly do traders determine prices
Replies: 8
Views: 3670

Re: how exactly do traders determine prices

Frolloos is totally right: the final price depends on many factors. I would also add that it depends also on the "internal rules" of the bank: for some trades you cannot charge more than x times the Vega + y times the Delta of an option. This is especially true when the instrument is part of some st...
by lePiddu
December 19th, 2019, 8:12 am
Forum: Technical Forum
Topic: Historical Volatility for Black-76 Formula
Replies: 2
Views: 1895

Re: Historical Volatility for Black-76 Formula

Pick up the old ML paper. I can send, ping me.
hi mtsm! I pm'd you but I couldn't receive an answer. Anyway I don't know what paper are you referring to, can you provide a reference? 

Thank you very much in advance!
by lePiddu
December 18th, 2019, 10:51 am
Forum: Technical Forum
Topic: Breakthrough in the theory of stochastic differential equations and their simulation
Replies: 992
Views: 118865

Re: Breakthrough in the theory of stochastic differential equations and their simulation

Hi Amin,

I noticed you have an enormous amount of posts, also dating back some years.

Can you summarize what you are doing (in a very brief post)? I'm a bit curious but I really do not want read everything.

Thanks  in advance.
by lePiddu
December 11th, 2019, 8:56 am
Forum: Technical Forum
Topic: Historical Volatility for Black-76 Formula
Replies: 2
Views: 1895

Historical Volatility for Black-76 Formula

Hi everyone! I have a very "simple" question but I think the answer is not completely straightforward: "What historical volatility would you compare to the implied volatility of a standard Swaption (priced with Black-76 formula)?" That is, totally disregarding how to estimate the volatility (in the ...
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