time dependent volatilities on trinom

nikki · October 28th, 2005, 1:24 pm

assuming that i know forward vol term structure, say vol(0-30days), vol (30-60days), vol(60-90) day....1 month forwad vols...On trinom i choose dt=15 days, how should i adjust my vols?vol(50-65)=sqrt(var(50-60)*10/365+var(60-65)*5/365)/15 orvol(50-65)=sqrt( var(50-60)*10/365+var(60-65)*5/365 +2*cov([30-60],[60-90]) )thanks

archimg · October 31st, 2005, 9:45 am