Forward Vol Agreement

frankmaouk · June 24th, 2009, 6:20 am

Hi, does anyone know what vol should be used for the strike calculation of the strangle which you will obtain by paying the premium. Should it be the agreed vol or the market vol?

Binoux · June 25th, 2009, 6:39 pm

Given a volatility term structure sigma(T), the forward volatility for the (future) period [T1, T2] is given by: sigma^2[T1, T2]= 1/(T2-T1) * (T2*sigma^2@t2 - T1sigma^2@t1)That should work for your purpose.

cpengtoh · July 23rd, 2009, 1:51 am

Agreed vol.