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Pricing STIR mid curve options
what vol should be used for pricing mid curve options ?for an option expiring on sep 10 on an underlying expiring on sep 11 , should i use the vol of the sep 11 future or do i need a term structure of the vol?How can such a term structure drawn or can it be deduced from any instruments traded in otc markets?Thanks
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- Martinghoul
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Pricing STIR mid curve options
There's a variety of potential solutions/analyses you can do... In practice, as I am sure you're already aware, these get priced using simple B-S.