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by prodiptag
November 30th, 2010, 10:52 am
Forum: General Forum
Topic: Modelling the Short End
Replies: 7
Views: 24439

Modelling the Short End

<t>interesting, you job is tough no doubt, and I think there is no easy way out, it will ultimately come down to judgment in the last milebut given your case, I would prefer to have the model a bit different - like have a single (short end) curve marked to euribors/euro swaps (or may be even germany...
by prodiptag
November 30th, 2010, 10:36 am
Forum: Technical Forum
Topic: Interest Rate: Volatility Cube calibration with SABR
Replies: 11
Views: 28933

Interest Rate: Volatility Cube calibration with SABR

in step 2, you know the 6m caplet @ r(1y) becuase in step 1 you have calibrated the enitre smile for 6m caplets. So you should have enough info to price a 6m caplet at any given strike. Of course if your smile is flat, it will be just equal to 6m @ r(6m)
by prodiptag
November 30th, 2010, 7:55 am
Forum: Trading Forum
Topic: Why vanna volga is used for FX only
Replies: 1
Views: 25504

Why vanna volga is used for FX only

<t>mostly becuase of 1. mkt conventions and 2. nature of underlyingin the fx mkt the standard mkt quotes are delta based flys and rrs, which readily gives way to vanna/volga calcs and use - and seeing and pricing exotics risks in terms of vanna/volga on that time bucket. in rates mkt, the quotes are...
by prodiptag
November 28th, 2010, 5:24 pm
Forum: Trading Forum
Topic: parameter fitting problem - please help!
Replies: 12
Views: 23285

parameter fitting problem - please help!

Would hazard a guess, under normality assumption (guess that's the case here) MLE and SUR should be equivalent, as long as we have the same error covariance matrix - which would be the case, for example, we don't want to estimate rho, only the other params. But I would not bet on that
by prodiptag
November 28th, 2010, 3:26 pm
Forum: Trading Forum
Topic: parameter fitting problem - please help!
Replies: 12
Views: 23285

parameter fitting problem - please help!

well, am no expert on this, but I vaguely remember from my econometrics classes that this is what is called "seemingly unrelated regression" and have standard methods for estimations. SUR
by prodiptag
November 26th, 2010, 3:06 pm
Forum: Technical Forum
Topic: Interest Rate: Volatility Cube calibration with SABR
Replies: 11
Views: 28933

Interest Rate: Volatility Cube calibration with SABR

<t>in an idealized world stripping will be like this -> suppose you have quotes for a 6mm cap at r(6m) atmf strike and plus otms, 1y cap at r(1y) strike+ otms, 1y6m at r(1y6m) strike+otms, so you do the followings. 1. your 1st 6m caplet is easy and already given, calibrate your sabr (or whatever) to...
by prodiptag
November 26th, 2010, 1:44 pm
Forum: Trading Forum
Topic: how do you make money off a slightly overpriced investment?
Replies: 5
Views: 23921

how do you make money off a slightly overpriced investment?

<t>I would not conclude that, rather would say correlated instruments (without going in to that dubious thing called correlations) are easier to price relatively, i.e. if you think A and B are correlated, then you would probably have higher confidence in the price of P(B) in terms of P(A) (relative ...
by prodiptag
November 26th, 2010, 1:22 pm
Forum: Trading Forum
Topic: how do you make money off a slightly overpriced investment?
Replies: 5
Views: 23921

how do you make money off a slightly overpriced investment?

<t>Interesting!! ... stock price today is given, say X, so for your estimate of future earnings Y, say the discount of riskfree rate rf matches the price, for another investor, estimate is Y', so he thinks discount is rf+risk premium, and whoa, some other, with Y'', thinks the discount is less than ...
by prodiptag
November 25th, 2010, 7:40 am
Forum: Technical Forum
Topic: Interest Rate: Volatility Cube calibration with SABR
Replies: 11
Views: 28933

Interest Rate: Volatility Cube calibration with SABR

<t>perhaps missing somethine here, but if you want to price swaptions why are you calibrating your vols to cap/floors? usually swaptions and cap-floors markets trade deifferently with different underlyings and different supply demand dynamics, so smile and vols in one might not be represantative for...
by prodiptag
November 22nd, 2010, 2:42 pm
Forum: Technical Forum
Topic: caplet volatility from bloomberg
Replies: 4
Views: 29981

caplet volatility from bloomberg

the vcub in bloomberg gives you the swaptions vol surface, not the cap/caplet vols, AFAIKtypically for the currencies that I have seen, you usually do not get caplet vols directly, you get cap/floor vols instead. You can "strip" this vols to generate caplet volatilites
by prodiptag
November 15th, 2010, 9:18 am
Forum: Technical Forum
Topic: Libor chooser option?
Replies: 8
Views: 25710

Libor chooser option?

<t>If this is not a very exotic structure (e.g. the "chooser" optionality + callable by issuer, say), I would be more focussed on the getting the price/risks compared against mkt instruments, than trying to capture the dynamics over period. Given the trade below, this seems a simple trade with known...
by prodiptag
November 10th, 2010, 10:54 am
Forum: Technical Forum
Topic: expected gamma pnl for normal models
Replies: 2
Views: 24504

expected gamma pnl for normal models

<t>Hi all, just wondering has anyones ever worked out the expected gamma pnl for a normal model with constant vol. So we delta hedge a short option with implied vol, which is different than the realzied vol (both are constant), what will be the expected pnl. the pnl I think should be something like ...
by prodiptag
November 10th, 2010, 5:28 am
Forum: Technical Forum
Topic: Cap/Floor Vol for pricing
Replies: 7
Views: 24747

Cap/Floor Vol for pricing

<t>well there are multiple methods to get some ideas about the skew from historical data. One quick and simple is to establish a relationship between the changes in atm vol to changes in atmf rates (thru, say, regression), works for shorter maturities, near atmf strikes - then you can go on complica...
by prodiptag
November 9th, 2010, 2:40 pm
Forum: Technical Forum
Topic: Cap/Floor Vol for pricing
Replies: 7
Views: 24747

Cap/Floor Vol for pricing

<t>well this is a separate problem now!This has two parts - pricing and hedging, and both contain some out of the a** methods. If is very much otm I would avoid it altogether. Otherwise, for pricing I think a) I would actually go through the historicals to get an estimate on the skew, and put that o...
by prodiptag
November 9th, 2010, 12:53 pm
Forum: Technical Forum
Topic: Cap/Floor Vol for pricing
Replies: 7
Views: 24747

Cap/Floor Vol for pricing

<t>yes you are correct, if you are doing a 6m cap in a mkt where only 3m's are quoted -> mkt is incomplete -> static hedging not possible -> dynamic hedging with associated risks. But these below gives you a color on the type/amount of risks you are taking up and helps you decide what risks you shou...
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