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gammaslide
Posts: 83
Joined: January 20th, 2010, 7:08 pm

origins of interest rate skew

March 12th, 2011, 2:59 pm

interesting..martin do you have any thoughts on the right choice?What about euros and usd?
 
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Martinghoul
Posts: 3256
Joined: July 18th, 2006, 5:49 am

origins of interest rate skew

March 12th, 2011, 3:17 pm

QuoteOriginally posted by: gammaslideinteresting..martin do you have any thoughts on the right choice?What about euros and usd?I use beta of 0, for a whole variety of reasons... To be sure, I am not a dealer running a book full of all sorts of vanilla and exotic rubbish that heavily depends on model parameters, so maybe you shouldn't be asking me.
 
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gammaslide
Posts: 83
Joined: January 20th, 2010, 7:08 pm

origins of interest rate skew

March 12th, 2011, 7:17 pm

thanks martin, I've been trying to search and understand this particular but coming up short hence the questioning.Would appreciate it if you could elaborate on why you choose zero(btw is it easier to choose 0 over say 0.1 because of the exact analytical solution for b = 0?)
 
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Soorma
Posts: 46
Joined: August 8th, 2008, 1:38 pm

origins of interest rate skew

March 22nd, 2011, 2:28 am

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 after a certain limit actually decreases the atm vol ... I have used the normal sabr mentioned by a lesniewski in http://www.math.nyu.edu/~alberts/spring ... .pdfThanks
 
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Martinghoul
Posts: 3256
Joined: July 18th, 2006, 5:49 am

origins of interest rate skew

March 22nd, 2011, 8:52 pm

1. Normal, I'm pretty sure.2. No, I don't think I noticed.
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