Calculating normalised swaption volatility

Derivs · June 21st, 2011, 1:32 am

Can anyone give me a simple explanation (without too much techy stuff) how to compute swaption normailsed volatility from the BS vol?Much appreciated.

pimpel · June 22nd, 2011, 5:56 pm

You can either take approximation given in one of the Pat Hagan's papers, or calculate Black76 price, then take the Bachelier formula and search for normal vol, that will give you the Black76 price.

Derivs · June 23rd, 2011, 3:31 am

I don't suppose anyone could provide the link to Pat Hagan's paper with the approximations? I don't seem to be able to find the right one.Many thanks

dicesare · June 23rd, 2011, 12:03 pm

QuoteOriginally posted by: DerivsI don't suppose anyone could provide the link to Pat Hagan's paper with the approximations? I don't seem to be able to find the right one.Many thanksformula A.64 in Managing Smile Risk