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by struggler
April 14th, 2011, 1:25 pm
Forum: General Forum
Topic: Applying Malz (1997)
Replies: 9
Views: 24084

Applying Malz (1997)

<t>@MCarreira thank you for your reply and your continous help. I am still not clear on 3 issues I have summarized them in the attached file. 1- relates to the spot delta qouted and the forward delta that should be used 2- relates to adding the spread to the volatilities and 3- relates to the calcul...
by struggler
March 31st, 2011, 12:23 pm
Forum: General Forum
Topic: Applying Malz (1997)
Replies: 9
Views: 24084

Applying Malz (1997)

I have got one more question. To apply Malz I need to input Spot, domestic currency deposit rate and foreign currency deposit rate. I am using calls so which side should I use. I mean for the spot, domestic rate and foreign rate shall I use the bid or ask. Thanks
by struggler
March 24th, 2011, 7:58 pm
Forum: General Forum
Topic: Applying Malz (1997)
Replies: 9
Views: 24084

Applying Malz (1997)

<t>1-Wystup mentioned that forward delta is to be used delta call-delta put=1. My problem is to apply malz I get ATM, RR and BF from Bloomberg which uses the market convention spot delta for maturities less than one year (which I am interested in). what I understand is I need to use forward deltas a...
by struggler
March 23rd, 2011, 1:23 pm
Forum: General Forum
Topic: Applying Malz (1997)
Replies: 9
Views: 24084

Applying Malz (1997)

<t>I have been trying to implement Malz to derive the implied volatilty curve of currency pairs but I faced the following:1- while reading Wystup "FX Volatility Smile Construction" he mentions that Malz representation is only valid for forward deltas, although Malz incorrectlyuses the spot delta in ...
by struggler
February 2nd, 2011, 5:55 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

I did multiply by the size of range (0.01) in column M but the total was 0.958 cell M118. why is that the case and how to adjust to get a total of 1
by struggler
January 26th, 2011, 11:44 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

using $G$17 makes the numbers more inline with probabilities, but can you pls elaborate on the rationale. iIam confused because by using $G$17 I am not actually calculating the 2nd derivative with respect to the strike and hence I am not really applying Breeden-Litzenberger.
by struggler
January 26th, 2011, 9:34 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

<t>Thanks to your instructions MCarreira I now have the Smile in delta space and the smile in the strike space which look consitent with different publications discussing this topic. I however I am still facing a problem in Breeden-Litzenberger. the shape of the distribution looks ok but for the dif...
by struggler
January 23rd, 2011, 10:52 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

<t>thank you for the clarification. I wonder if you can help me with deriving the risk neutral distribution. I have tried to claculate the 2nd derivative of the call price with respect to strike using actual differences between the calculated call prices and strikes (trial 1) and I tried to use Bree...
by struggler
January 23rd, 2011, 9:29 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

I guess my problem is in understanding what Malz meant by "vol in excercise price space",is he simply saying once I get the vol (from the parbolic equation) and plot it against the strike (the one I drive using the method you guys mentioned) that would be the "vol in strike space"?. Thanks
by struggler
January 23rd, 2011, 5:09 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

<t>I have done this part I am not sure of the next step. Malz is refering to moving from delta volayilty space to excercise price volatility space [sigma(Delta) to sigma(excercise prise)] by solving 2 simultaneous equations. I am confused with the concept of conversion from one space to the other. <...
by struggler
January 23rd, 2011, 5:09 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

<t>I have done this part I am not sure of the next step. Malz is refering to moving from delta volayilty space to excercise price volatility space [sigma(Delta) to sigma(excercise prise)] by solving 2 simultaneous equations. I am confused with the concept of conversion from one space to the other. <...
by struggler
January 23rd, 2011, 4:19 pm
Forum: Technical Forum
Topic: FX Volatility smile in delta space vs. excercise price space
Replies: 18
Views: 27290

FX Volatility smile in delta space vs. excercise price space

<t>I am confused with the concept of implied volatility in delta space vs implied volatility in excercise price space. I was trying to apply Malz to reach risk neutral distribution. I got the vol in delta space using Malz equation and I backed out the strike. The papper then talks about mapping to t...
by struggler
January 20th, 2011, 7:43 am
Forum: Technical Forum
Topic: Visalizing Probability Distribution of FX from volatility Skew
Replies: 6
Views: 42200

Visalizing Probability Distribution of FX from volatility Skew

<t>I looked at your spreadsheet "FXImpliedDistributionsWilmott.zip". I am trying to do exactly the same thing which is deriving risk neutral probabilties from option prices. I am trying to use Malz as well. I was wondering why you derived the distribution in delta space rather than strike space, I w...
by struggler
January 11th, 2011, 10:29 pm
Forum: Technical Forum
Topic: Implied Volatility Constraction Malz (1997)
Replies: 10
Views: 25294

Implied Volatility Constraction Malz (1997)

Thanks a lot MCarreira. I will carry on with the other steps till i reach the risk neutral distribution.
by struggler
January 7th, 2011, 5:22 pm
Forum: Technical Forum
Topic: Implied Volatility Constraction Malz (1997)
Replies: 10
Views: 25294

Implied Volatility Constraction Malz (1997)

Leonidas...I am planing to use a modefied version of Malz as proposed by "FX Volatility Smile Construction" by Wystup. I am however not sure if this is the best approach.
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