<t>This is an accoutning question not a Quant Finance question I think. very simply, per IAS 39 and FAS 133 require that the hedge is "effective" enough to stay on the books as a hedge and not straight mark-to-market. In order to do that you need a regression analysis, both retro and prospective. Re...

Use an option analysis calculator to back solve for vols

<t>I do this every quarter......back-solve (option analysis once you have the value of the option) to get the implied volatility then fit as many "knowns" into the smile as you can. Once you get enough data points you can interpolate the rest. I use a linear interpolation even though the vols usuall...

<t>I agree with untwigged, it would just increase your vols across whatever option months your "spike" relates to. I don't really see the point of this unless the spike occurs on the same day you're valuing/reporting option values. If a spike occurs in the middle of the month and then flattens back ...

<t>I think the best way is to first use an option analysis calculator to find out the implied volatilities for the options. After you have a nice data set for the vols across your smile (5, 10, 15% in or out of the money) you can see the behavior of the smile. From there look at the various skew typ...

<t>Ok. I have a software system that prices options. The system contains a volatility smile structure, example, ATM and then +5 +10 +15 -5 -10 -15 in or out of the money etc based on strike price. So my problem is, should I just compute the implied volatility based on our banks statments (that conta...

<t>I've always had an issue with option valuation. Even if we assume an equal model being used by 2 parties, different assumptions will yield sometimes significantly different results. Thats why every month when I receive counterparty statements with our trade valuation it says "cannot be relied upo...

<t>Okay. The scenario is you designate a basis swap with a collar as one unit. So lets say you have a 8 floor 10 celing on a collar and then you have a -.50 basis swap on top of that. The way i see it is that your desgnation or exposure price then becomes 7.50 and 9.50. My question is...I'm having t...