Perhaps a naive question, if one was to price a 30 year European equity put option, while observing that swap rates are lower than treasury rates for 30 year term, would swap curve still be the appropriate curve to use for valuation?

<t>Church, thank you for suggesting Pelsser & Schrager paper. I am currently in the process of setting up calibration of the model via Jamshidian, and rely on the calibrated lattice as a convenient benchmark. My working assumption is that calibrating Hull-White via a trinomial tree and via Jamsh...

<t>I have run into a small road block and would appreciate some direction from more seasoned subject experts. Here is how the "road block" comes into play:1. Several swaptions and a yield curve are used to calibrate Hull-White 1 factor affine model, i.e. produce mean reversion and short rate vol (bo...

Thank you!

<t>When interest rates are assumed to be stochastic Black Scholes framework still holds for pricing vanilla european equity puts/calls. Obviously using stochastic rates vs. constant rate leads to different prices or alternatively different implied volatilities.Would you be so kind to point me to a p...

When pricing Treasury Futures Options, what would be an appropriate curve to use for discounting associated payoffs, i.e. LIBOR or Treasury?

A host of futures/options on real estat by geographic are are traded on CME. I believe, at least options, are recent additions.

I believe that phrase 'atm option has a a delta of 0.5' could be used as a good (read quick) proxy for short dated options. For longer dated options (try T>1 year) delta can become significnatly different than 0.5.

<t>I am building an attribution analysis process for a book of business. The intent is to explain changes in value due to changes in interest rates and volatility. Black-Karasinsky process is used to describe short rate evolution. Calibrated local vols and mean reversion have tendency to move around...

<t>I think we could generalize convexity-vega relationship in the following way. For any interest rate sensitive book without explicit embedded optionality:- for parts that are either tied to fixed rates or to floating rates that are set in advance convexity will be non-zero, while vega will be zero...

Hi Pat! Would it be possible to get a copy of the paper you've mentioned in this thread?

<t>Here is an interesting question. Volatility parameter enters into a valuation equation of an in-arrears swap as part of convexity adjustment. So , would dValue/dsigma be considered to be Vega of the swap or it should be entirely attributed to Convexity of the swap and meaning that Vega is zero? <...

Thanks. This is a good idea!

<t>Value of in-arrears swap depends on volatilities of forward rates. This relationship results in non-zero vega for the instrument. I am trying to explain this relationship on an intuitive level. Perhaps a replication of the floating leg into some option like (cap/caplet) instrument may shed some l...