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by Jhammer
April 1st, 2015, 5:49 pm
Forum: Technical Forum
Topic: Filling up swaption missing vols
Replies: 8
Views: 3606

Filling up swaption missing vols

Thanks for your response!You are absolutely right! interpolation on total variance resolves the issue. May I ask you to elaborate on you last sentence (shifted black model)? Can you introduce me a resource I can read more about?cheers!
by Jhammer
April 1st, 2015, 2:23 pm
Forum: Technical Forum
Topic: Filling up swaption missing vols
Replies: 8
Views: 3606

Filling up swaption missing vols

I am referring to black implied vols for ATM swaptions. The surface is on maturity and term.
by Jhammer
March 31st, 2015, 2:25 pm
Forum: Technical Forum
Topic: Filling up swaption missing vols
Replies: 8
Views: 3606

Filling up swaption missing vols

<r>Thanks for you response!My main concern with the interpolation of volatility is the implication of negative forward vol in some cases. Consider the following simple example:one-year vol $$\sigma_1 = 0.2$$tow-year vol $$\sigma_2 = 0.15$$Linear interpolation results in 17.5% vol for one-and-half-ye...
by Jhammer
March 30th, 2015, 7:03 pm
Forum: Technical Forum
Topic: Filling up swaption missing vols
Replies: 8
Views: 3606

Filling up swaption missing vols

<t>Hi Wilmott'ers,My question might seem a bit trivial but I'll ask it anyway.What is the market practice for filling up the missing vol surface data of EUR ATM swaption (or swaption vols in general)? Is there any convention, i.e., priorities to fill up the holes?Any input is greatly appreciated! </t>
by Jhammer
December 22nd, 2014, 5:51 pm
Forum: Technical Forum
Topic: Swaption vol cube from proxies
Replies: 8
Views: 4260

Swaption vol cube from proxies

I agree, there should be a straight forward approach for smaller (not major) currencies. I believe the solution should start with pricing a single-cap through proxies and then extend it to swaption. I think Peter is trying to present the flexibility of the solution in general.
by Jhammer
December 22nd, 2014, 4:12 pm
Forum: Technical Forum
Topic: Swaption vol cube from proxies
Replies: 8
Views: 4260

Swaption vol cube from proxies

Thanks peter, this could be a good research project for different currency pairs to further investigate the degrees of freedom in pricing the replicating portfolio.
by Jhammer
December 22nd, 2014, 3:26 pm
Forum: Technical Forum
Topic: Swaption vol cube from proxies
Replies: 8
Views: 4260

Swaption vol cube from proxies

<t>Thanks peter for your reply, can you expand on your comment?I understand that interest rate dynamics in one currency is essentially different from another one. How about replicating an IDR cap by USD cap and fx forward? Is it possible to determine the equivalent strike of the replicating USD cap?...
by Jhammer
December 19th, 2014, 6:10 pm
Forum: Technical Forum
Topic: Swaption vol cube from proxies
Replies: 8
Views: 4260

Swaption vol cube from proxies

To make my question clear, let me add this example:Let say, we need swaption vols in a currency with scarce data such as Indonesian Rupiah (IDR). How one can calculate swaption vols in IDR using other instruments in a major currencies such as USD. Is this theoretically possible?
by Jhammer
December 19th, 2014, 2:21 pm
Forum: Technical Forum
Topic: Swaption vol cube from proxies
Replies: 8
Views: 4260

Swaption vol cube from proxies

Hi,Does anyone know any methodology to calculate swaption vol cube of one currency from other proxies?I am not sure what choices can be considered for proxy in this case. Any feedback is much appreciated.Cheers
by Jhammer
July 25th, 2014, 11:46 am
Forum: Technical Forum
Topic: Spread Option, Carmona Formula
Replies: 10
Views: 5338

Spread Option, Carmona Formula

<r>Thanks Spursfan,I was specifically asked to regenerate the results of Carmona's paper. I agree that there may be better approaches in the literature. My personal favourite is Petter's approach. Fairly accurate and straightforward:<URL url="http://brage.bibsys.no/xmlui/bitstream/handle/11250/16410...
by Jhammer
July 24th, 2014, 9:43 pm
Forum: Technical Forum
Topic: Spread Option, Carmona Formula
Replies: 10
Views: 5338

Spread Option, Carmona Formula

<t>Thanks for your suggestions, AlanUnfortunately, the function is not real valued on the interval. The authors do not elaborate on the complex structure of this non-linear equation. However they provide the solution in special cases. I will follow your approach and see if it improves the results.Ch...
by Jhammer
July 23rd, 2014, 5:40 pm
Forum: Technical Forum
Topic: Spread Option, Carmona Formula
Replies: 10
Views: 5338

Spread Option, Carmona Formula

<t>The equation is not real valued and sensitive to input parameters. I need to evaluate the soundness of this method by using the formula for different ranges of input parameters. So this is what I came up with in MATLAB. I use abs function to find absolute value of the function. Then inside a for ...
by Jhammer
July 23rd, 2014, 4:11 pm
Forum: Technical Forum
Topic: Spread Option, Carmona Formula
Replies: 10
Views: 5338

Spread Option, Carmona Formula

<r>Thanks for your reply,You can find the equation in this link:<URL url="http://mpra.ub.uni-muenchen.de/6994/1/MPRA_paper_6994.pdfTo"><LINK_TEXT text="http://mpra.ub.uni-muenchen.de/6994/1/M ... 6994.pdfTo">http://mpra.ub.uni-muenchen.de/6994/1/MPRA_paper_6994.pdfTo</LINK_TEXT></URL> be specific, i...
by Jhammer
July 23rd, 2014, 3:24 am
Forum: Technical Forum
Topic: Spread Option, Carmona Formula
Replies: 10
Views: 5338

Spread Option, Carmona Formula

I am currently using a for loop and grid-searching on the interval but there should be a better way.
by Jhammer
July 23rd, 2014, 2:45 am
Forum: Technical Forum
Topic: Spread Option, Carmona Formula
Replies: 10
Views: 5338

Spread Option, Carmona Formula

<t>Hi,I am working on generating the results of the following paper. REN´E CARMONA AND VALDO DURRLEMAN "PRICING AND HEDGING SPREAD OPTIONS IN A LOG-NORMAL MODEL"This is a highly cited paper and is about spread option pricing where the two assets are jointly lognormal. I am having so much difficulty ...
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