I've heard that you can convert lognormal vols to normal vols using the approximation NVol = LNVol x sqrt( ATM Fwd x Strike)Can someone hlep me in understanding this approximation?Many thanks!!-Raph

<t>Further question.... I've heard that you can convert lognormal vols to normal vols using the approximation NVol = LNVol x sqrt( ATM Fwd x Strike)For short rate models....Since for lognormal vols, dr/r = udt + LNVol dz andSince for normal vols, dr = udt + NVol dz Wouldn't NVol = r x LNVol..... can...

Thanks for the reply everyone, it really helped!! .... I think I'll use the spreads as the rv in modeling the spreadoptions!-Raph

<t>Hi Is anyone familar with Spread Options, ie options on the spreads between two rates like the 10Y vs 30Y? Specifically how do we model them? I've heard that some people are modeling the spread while others are modeling the two rates individually and estimating correlations between the rates.Than...

I'm new to Exotic interest rate products, would anyone be able to explain the structure of a TARN and how its typically hedged?Many Thanks-Raph

Risk rates JP Morgan, Citigroup and Goldman as the top few.... anyone knows what the market believes are the best interest rate exotics house?