<t>QuoteOriginally posted by: AlanI see. Well, instead of adjusting the parameters one by one, "by hand" as you seem to do, you couldwrite a simple optimizer to adjust them all at once for the best fit.An optimizer will definitely give me the best fit , but i would not be able to quantify my risks i...

<t>QuoteOriginally posted by: AlanFrom (36), I assume the leading term is sig(n,atm) = sig0 F0^betaIf you include the corrections, you havesig(n,atm) = sig0 F0^beta{ 1 + [c1 beta + c2 rho alpha + c3 (2 - 3 rho^2) alpha^2]},where c1,c2,c3 are independent of alpha and rho. So, the corrections are line...

Anyone?I am sure all those using the normal SABR would be able to answer this I just want to confirm if i have made an implementation error or is it something known and corrected for> feesl like its a big practical issue to be ignored

<r>I have a problem with the normal implied vols derived from SABR (<URL url="http://www.math.nyu.edu/~alberts/spring07/Lecture2.pdf">http://www.math.nyu.edu/~alberts/spring07/Lecture2.pdf</URL>) Alpha is not proportional to ATM vol , as i increase alpha the ATM vol increases to a point and then dec...

<r>Hi1) When you talk about beta 0 , are you talking about the SABR kicking out normal vols , or lognormal , i suspect with a normal sabr beta close to 0 seems to give a good snapshot of the market prices 2) Have you noticed that alpha and atm vol do not have one to one mapping , increasing alpha af...

If i understood you properly , the true realized vol v2 being different from v1 , implies a different path space than v1 . implied vol of 40 perc on the underlying implies a different distribution(paths) than an implied vol of 20 percent .

<t>I dont have much idea about swaptions but i assume the vol of vol increases when time to expiration decreases just because there is a jump risk for short term options. So i did not understand what decay are you talking about . Vol of vol may come down when the atm vol increases . Also would this ...

<t>I am new to modeling STIR vol skews so i have a doubt for the practitioners.I feel that my straddle change(ATM VOL CHANGE) is not aligned to what the options market has .What would be a reasonable number of times we need to change the straddles on a day when the futures has moved 14 ticks ?My str...

<t>what vol should be used for pricing mid curve options ?for an option expiring on sep 10 on an underlying expiring on sep 11 , should i use the vol of the sep 11 future or do i need a term structure of the vol?How can such a term structure drawn or can it be deduced from any instruments traded in ...

<t>Thank you guys i will surely read the article , but i was wondering if we can compare the historical vol vs implied vol then why cant we compare the implied probability distribution of the underlying with historical distribution as the prob distribution is extracted from the option prices which l...

p_absorption(x|x0) < p_free(x|x0) < p_reflecting(x|x0agree on this but i have doubts if imp_vol ( reflecting)> imp_vol(free) for a strike under two distributions..I will check numerically and get back Thanks

i think i should rephrase can we compare historical realized vol vs implied vol because both are measured in different worlds ?

<t>Thanks for your reply AlanIf the probability of the underlying reaching zero is negligible then under that distribution the volatility for the option at a strike close to zero is less . for ex if my underlying is at .5 and the price of an option at strike .25 is .025 then under the distribution w...

<t>I sort of understand what u mean but i am trying to use it for interest rate option . i do not understand why would be the price of the option under no boundary constraint(means underlying can take negative values) be the same in which there is a boundary at 0. in the first case i would have posi...

I found a paper on it but i am uncomfortable with the result for the bounded option . It says when the boundary is at 0 the option value is same as the value of an option in an arithmetic brownian motion with no boundary