How is the industry dealing with European cash settled swaption now? Anybody had a try of the paper of "two collars and a free lunch"?

https://papers.ssrn.com/sol3/papers.cfm ... id=2686622

In Managing Smile Risk, Hagan gives a more accurate formula (in Appendix formula A.64)

<t>The following method, An arbitrage-free method for smile extrapolation, gives a smoother result than gaussian extrapolation.QuoteOriginally posted by: Hugo60Hi all,In order to overcome the problem of negative probability density function in the original paper of Hagan, we have extrapolated the de...

Should be helpful Correlations and bounds for stochastic volatility models - P.-L. Lions and M. Musiela

QuoteOriginally posted by: Finance123456I would be more than happy if anyone would post this article on conversion formulas to the forum or send it to me via e-mail! Thanks a lot!Managing Smile Risk formula B.64

QuoteOriginally posted by: stampedingI'd like to both be able to handle negative forward rates and have full consistency between different cases, so I'd be very grateful for any comments that might help me to solve this problem.One way is to use shifted SABR as suggested here.

<t>Hi,Hagan gives implied volatility formula for local volatility C(F), just apply it to C(F) = (F - S)^beta. See formulas (A.59) in Managing Smile Risk.QuoteOriginally posted by: prodiptagHi All, I would need some pointers to the shifted SABR model expansion. That is, the process of the forward is ...

QuoteOriginally posted by: DerivsI don't suppose anyone could provide the link to Pat Hagan's paper with the approximations? I don't seem to be able to find the right one.Many thanksformula A.64 in Managing Smile Risk

<t>West and Hagan papers :A brief comparison of interpolation methods for yield curve constructionMETHODS FOR CONSTRUCTING A YIELD CURVEQuoteOriginally posted by: miscelaniaHello,No, I haven't tried using splines.Could you give me some references?I think that my problem is that I do bootstrap, in th...

<t>QuoteOriginally posted by: JackBauerDicesare,You're using your own modified function for the right side... I was about to do that as well. And you're controlling CMS quotes thanks to the upper strike. How stable is this methodology?It is stable.QuoteI mean if you need to change frequently the str...

<t>Hi,1) I start with mu=1, I search the first strike K_{Inf} in [0, F] such that the convexity condition is verified. If there is no solution in the range I increase the mu.2) I use a modified function for the right side to control the strike where call prices vanish.3) I use such a strike to contr...

QuoteOriginally posted by: pcasperssounds like a good idea. What is your experience with that, for which products do you use it and what are the costs?It is a good think for liquid products (cap, swaptions, CMS). I don't know the costs. I just know that it is cheaper if you are a contributor.

QuoteOriginally posted by: pcaspersno, what is that?Mark It TOTEM

<r>Are you using TOTEM EUR wings (strikes from 8% to 13%) contrib ?My conclusions is that people are using a beta closed to 30%. QuoteOriginally posted by: pcaspersThe original approximation in Hagans Paper "Managing Smile Risk" is accurate only near ATM. There are improvements, have a look e.g. at ...

<t>Ooups, I miss the minus in front of the digital :Put(K=0) >= Put(K=F) - Digital(K=F)xF .QuoteOriginally posted by: BustopherJonesThanks a lot, dicesare. I've got a question concerning the condition you stated: in my opinion Put(K=0) = 0 and Put(K=F) > 0 and Digital(K=F)xF > 0. That would mean tha...