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July 29th, 2012, 4:01 pm
Forum: Technical Forum
Topic: entropy - implied and realized
Replies: 4
Views: 12004

### entropy - implied and realized

I will try and post you chart, btw my market is rates, not equity - I basically extract the distribution from tight flys, prices are totally otc, and I am okay with the quotes of the strikes. for the realized I use kernel density method
July 29th, 2012, 7:39 am
Forum: Technical Forum
Topic: entropy - implied and realized
Replies: 4
Views: 12004

### entropy - implied and realized

<t>Alan, thx for your comments. I think the VIX will capture the entire quoted smile structure for the implieds, but not sure how the same applies for the realized part - we have to stick to realized vol - meaning the recent supports or resistance/ or the distribution shape we have witnessed will be...
July 23rd, 2012, 10:49 am
Forum: Technical Forum
Topic: entropy - implied and realized
Replies: 4
Views: 12004

### entropy - implied and realized

<t>I am investigating a new measure for option strategies - which is I would say - a modified version of the standard implied vs realized vol ratios. I am computing the (differential) entropies of the implied distribution and the recent realized distribution, and computing the ratio of the entropies...
July 20th, 2012, 12:14 pm
Forum: General Forum
Topic: realized and implied entropies
Replies: 0
Views: 11132

### realized and implied entropies

<t>I am investigating a new measure for option strategies - which is I would say - a modified version of the standard implied vs realized vol ratios. I am computing the (differential) entropies of the implied distribution and the recent realized distribution, and computing the ratio of the entropies...
June 29th, 2012, 2:33 pm
Forum: General Forum
Topic: swaption prices from probability distribution
Replies: 0
Views: 11806

### swaption prices from probability distribution

<t>the reverse of the more usual thing. I input a probability distribution to price a swaption - say a 1m10y payer of strike k. the way I price it is to break the payer swaption pay-off as an infinite sum of digital payers at strike k, k+deltak, k + 2*deltak ... and so on. The n-th such digital opti...
June 20th, 2012, 10:51 am
Topic: Drivers of swaption theta
Replies: 8
Views: 14076

### Drivers of swaption theta

<t>QuoteWould you suggest calculating these effects sequentially? ie - first move the curve, then the vol surface, the roll up the skew and finally the day or the same in some other order? Or calculating each and then adding them?I guess there is no right or wrong way. I prefer doing each separately...
June 11th, 2012, 3:17 am
Topic: Drivers of swaption theta
Replies: 8
Views: 14076

### Drivers of swaption theta

<t>well, as martinghoul says, theta is theta, but the way you are calculating you have some rolldowns, it is strange you looked at fwd and vols and time decay and did not find anything... basically the way you are computing it will have 4 components - 1. Forward rolldown 2. vol rolldown (which can b...
May 22nd, 2012, 2:15 pm
Forum: General Forum
Topic: Empirically testing vanilla swaption model choice (norm vs log-norm etc)
Replies: 3
Views: 13078

### Empirically testing vanilla swaption model choice (norm vs log-norm etc)

<t>But this only tells you how it has traded in the past, so far. And not how it will, going forward - given the rates so near zero. Traditionally rates traders care about bps move per day and bps vol per day - which means tradiotionally it trades normal. It is hard to change mindset, so even if the...
May 22nd, 2012, 2:00 pm
Forum: General Forum
Topic: Empirically testing vanilla swaption model choice (norm vs log-norm etc)
Replies: 3
Views: 13078

### Empirically testing vanilla swaption model choice (norm vs log-norm etc)

<t>Agree which blend that works best, is to figure out which makes the model stable (and rather accross time), as Jim says. But checking if vol stays constant in a given blend (!!) and calibrating beta - I would think it might turn out to be disastrous. One quick way is to check, say lognormal, is t...
November 28th, 2011, 10:11 am
Forum: Technical Forum
Topic: Swaption vol parameterization
Replies: 3
Views: 16509

### Swaption vol parameterization

for some reason, almost all the folks on the street thinks in terms of sabr and its parameters, and some interpolation schemes accross T'ss and Tau's
November 28th, 2011, 10:00 am
Topic: Fwd vol vs Vol Traingle
Replies: 3
Views: 19287

### Fwd vol vs Vol Traingle

<t>in a BS-like world with flat skew, these two options are basically same, the long/short straddle just replicatiing the midcurve. So the difference is actually how you thik about the midcurve, outright vs replicating them. ... and yes, dealers will not price midcurves very sweet, esp off ATMF (lik...
November 1st, 2011, 12:37 pm
Forum: Technical Forum
Topic: shifted SABR model expansion
Replies: 10
Views: 26889

### shifted SABR model expansion

<t>perfect, nothing wrong I see for your case, I use a beta params that makes the transformation a bit nasty - plus I get the equivalent normal vol first and then convert it to a lognormal blend to get black vol, so it is not a simple case of shifting the forwards and strikes. refer to the original ...
November 1st, 2011, 5:36 am
Forum: Technical Forum
Topic: shifted SABR model expansion
Replies: 10
Views: 26889

### shifted SABR model expansion

<t>No, the expansion is slightly more elaborate than that, the ref below (A.59 in original paper) shows the expnasion for a generic case which can be used to get the results. the idea is to shift the smile and hit the mkt prices at the same time. the absorption at zero in normal sabr is not always v...
October 31st, 2011, 4:58 am
Forum: Technical Forum
Topic: shifted SABR model expansion
Replies: 10
Views: 26889

### shifted SABR model expansion

yup, I consider more or less done on this, the objective was getting meaningful smiles for low strikes
September 8th, 2011, 5:59 am
Forum: Technical Forum
Topic: shifted SABR model expansion
Replies: 10
Views: 26889

### shifted SABR model expansion

thank, this looks like close to what I wantednever read the appexdix before!!
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