hello peeps, please enlighten me - whats the convention for asset swap spreads on US inflation linked bonds? i am guessing its like this say your bond dirty nominal price is 122, dirty real price is 95 , and current par = 122/95*100 ~ 128.4 then for bond leg, your notional = 100, for funding , your ...

Yes swap minus treasury i meant

Dear community I see the brokers quote these Treasury swap spreads (basically treasury yield minus sofr swap rate)  per integer years tenor what is the actual payoff of these trades ? i believe these trades are also called SpreadOvers say the 5y spread today is 20bp and i enter into that 5y trade to...

just saw your reply now , many thanks!

yes that is what i thought too , there too my same question applies -  is there any intuitive reason why a third

i have seen a math derivation that proves that for a rfr caplet (caplet whose underlying is say sofr compounded in arrears) , that the total variance of the can be approximated to equal the rate vol ^2 * time , where time is years from now till one-third of the way through the caplet. clearly the va...

That CEV looks very hard to understand and implement for me. I think that implementing a tree thats calibrated to option prices may be the simplest approach for me to start with. I have Dermans GS papers that i can try. But i think perhaps Rubinsteins approach may be quicker and easier with less cha...

i realise why the ED is not monotonic in vol, its because , for an OTM ED, as vol goes up, it at first gets more likely to be ITM, but then, it gets less likely because the middle of the distribution (=X=F*exp(volsqT) ) recedes away

I have no idea how to do montecarlo for americans! Need some brownian bridge i guess but with local vol...

Thanks for the paper llooks very complicated but i will try that out!

Do you by any chance have VBA for that that i could test ? Or some algo that i can try implement to test it?

How about if we are considering a LOCAL VOLATILITY model, as opposed to other possible models, then is the reasoning from my OP true? That is weird about the ED! Sounds strange , i will test that out! By Monotonic in local skewci meant that since an ED price = -1×( dc/dk) = -1×( pc/pk + dc/dvol × dv...

Hmmm..
ED is monotonic in its Local skew.
Can you elaborate in more detail?

Btw whats a sinple way to price the OT given you have prices of EDs? As that perhaps may help here

Why would that simple case not be monotonic?

I am trying to think what is the sensitivity of american digitals (henceforth binary or one-touch (OT)) options to a) implied volatilities between atm and the barrier (henceforth ITM vols), b) implied vols on the other side (henceforth OTM vols) , c) the slope of the volatility smile (henceforth ske...