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by prodiptag
November 9th, 2010, 5:38 am
Forum: Technical Forum
Topic: Cap/Floor Vol for pricing
Replies: 7
Views: 24829

Cap/Floor Vol for pricing

<t>there are multiple ways of approach, I can think of two right now1. take the historical 6m/3m realized vol ratios, and multiply that with the 3m implied vol quotes to get an estimate of the 6m vol, use a factor of safety if you need to, depending on which side of the market you are. quick and eas...
by prodiptag
November 8th, 2010, 1:42 pm
Forum: Technical Forum
Topic: Which Vol should I use to calc the delta
Replies: 2
Views: 22976

Which Vol should I use to calc the delta

<t>theoritically, delta is the partial derivative of the option value w.r.t underlying, so if in your model, if you have any parameters that is a function of underlying (for e.g. arising out of say spot/vol correlations, like SABR), you should take that in to account too. From practical point of vie...
by prodiptag
November 4th, 2010, 7:09 am
Forum: Technical Forum
Topic: simple option price with uncertain vol
Replies: 2
Views: 23686

simple option price with uncertain vol

<t>Hi all, just wondering this .... suppose I price a vanilla options using a simple black type normal model, i.e. dF = drift + V0.dW, where V0 is known and constant. I get a price, say BS(V0). Now suppose another case where I am sure the sigma is constant, but do not know what it is. However I know...
by prodiptag
November 3rd, 2010, 1:32 pm
Forum: Technical Forum
Topic: Libor chooser option?
Replies: 8
Views: 25798

Libor chooser option?

<t>if i get your trade right, it shouldnt be much difficult for choice between 2 indices, say 3m and 6m, so basically the investor pays Min[ 3m, 6m] = pays 3m + long 3s6s caps at 0 strikes. if the pay dates are known you have a known number of basis options to price, on top of the swap, trade can be...
by prodiptag
October 29th, 2010, 9:02 am
Forum: Technical Forum
Topic: Fwd premium quoted for vanilla option - good/bad?
Replies: 6
Views: 28961

Fwd premium quoted for vanilla option - good/bad?

<t>I think the examples you posed are kind of reverse problem that people face. Say using black (or any other method you fancy)forward price = forward DV01 X function of (fwd swap rate, vol, strike, maturity)spot price = discount factor X forward pricenow for euro, mostly the swaptions are assumed t...
by prodiptag
October 19th, 2010, 9:40 am
Forum: Technical Forum
Topic: CMS Cap/floor Broker quotes
Replies: 2
Views: 25722

CMS Cap/floor Broker quotes

<t>QuoteOriginally posted by: JamesB1977Hi Are there any broker pages where one can see CMS cap/floor prices? If so pls can you point me in the right direction?ThanksI have not seen any and don't think anyone has a page for that. CMS pricings can be done once your vol surface is calibrated to atm st...
by prodiptag
October 13th, 2010, 10:23 am
Forum: General Forum
Topic: Meaning of different ICAP Swaption ATM Volas
Replies: 13
Views: 30910

Meaning of different ICAP Swaption ATM Volas

<t>QuoteOriginally posted by: MartinghoulHas to do with the transition to fwd premium that occurred recently in non-USD mkts. If memory serves, the "A" page is based on fwd premia.yes, so far i think you will see only in euro mkt, since this sept, 1A and (similarly 2A etc) are based on fwd premium, ...
by prodiptag
September 29th, 2010, 1:37 pm
Forum: Technical Forum
Topic: SABR questions: consistent risks measures
Replies: 2
Views: 23987

SABR questions: consistent risks measures

<t>I think you are absolutely right, mkts are more like (2), so as i update the curves and atm surface the next day, leaving skwe unchanged, my SABR will decide the skew it should be. Depending on the strikes and the movements I might gain or loose, but the next time i match the skew to mkt, the spu...
by prodiptag
September 29th, 2010, 5:04 am
Forum: Technical Forum
Topic: Sabr: Proportional or absolute changes in Volatility
Replies: 3
Views: 25254

Sabr: Proportional or absolute changes in Volatility

<t>QuoteOriginally posted by: Gmike2000I would favor proportional, but it can be a matter of personal taste. Some people compute vega based on a static absolute shift of, say, 1%. Obviously when vol is 10% and changes to 11% that is very different than vol going from 100% to 101%. So this is why oth...
by prodiptag
September 28th, 2010, 1:44 pm
Forum: Technical Forum
Topic: SABR questions: consistent risks measures
Replies: 2
Views: 23987

SABR questions: consistent risks measures

<t>Hi all, have a question on SABR ... suppose I use SABR for pricing but only the BS measures for risks (for e.g. for delta, without the 2nd term in the eqn 3.9 in the original paper by Hagan et al). and then sum up these risks accross the book for different strikes. I don't think this will be mode...
by prodiptag
September 28th, 2010, 4:43 am
Forum: Technical Forum
Topic: Comparing Broker Vol Grids Month on Month
Replies: 2
Views: 23759

Comparing Broker Vol Grids Month on Month

<t>QuoteOriginally posted by: MartinghoulWhy not?actually this is more involved and the answer is both yes and no. suppose your underlying is lognormal, and between the months the lognormal skew doesnt change at all, but the atmfs change 100bps. Obviously now your bps vol ("normal" vol) skew are dif...
by prodiptag
September 28th, 2010, 3:30 am
Forum: Technical Forum
Topic: Option theta
Replies: 9
Views: 25287

Option theta

<t>QuoteOriginally posted by: daveangelQuote Given this, I'm surprised that many websites (top ones if you google "option theta") on option trading argue that buying an option close to maturity is "stupid" as you buy an instrument whose price is expected to go down rapidly, while writing such option...
by prodiptag
September 27th, 2010, 11:49 am
Forum: Technical Forum
Topic: Strike Adjusted Spreads
Replies: 0
Views: 23012

Strike Adjusted Spreads

<t>Hi, I was wondering, the part I would like to explore in the paper (by Derman) is ATM surface adjusted historical dist. (RNHD[ATm]). Now, the basic assumption here I think is that 1. the relative gap of otm/atms are more stable (which I agree, instrinsically and don't care testing and am fine wit...
by prodiptag
September 17th, 2010, 4:50 am
Forum: Student Forum
Topic: SABR dynamics
Replies: 5
Views: 24545

SABR dynamics

<t>thanks Alan and spv205, Alan, thanks vm for your detailed inputs ... I think I have more than a clue here to go ahead, actually I prefer to use SABR for interpolation, not much as a model, but this is a particular need I have now... and more or less have an idea what to expect nowspv205, you are ...
by prodiptag
September 16th, 2010, 1:33 pm
Forum: Student Forum
Topic: SABR dynamics
Replies: 5
Views: 24545

SABR dynamics

<t>Hi All, was looking for an expression of forward rate under (static, or even dynamic) SABR model, like Exp[ f(T)] = ... . I dont see any materials that can help me on this, was wondering has anybody done anything on this? or may be closed form formulae are not possible, in that case has anybody d...
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