Calculation of Bpvols vs Yield Vols
Posted: August 17th, 2004, 2:32 pm
Hello all.I apologise in advance for this rediculously silly question.I have daily observations of 10yr swap rates (i.e 251 daily observations).I want to use this sample to estimate historical vols of the 10yr swap rate.What I do is the following.... 1.calc the daily changes in the 10yr swap rate, so .............. SR(t)-SR(t-1)2.calc the std dev of these daily changes3.multiply the outcome with sqrt(251) to annualizeWhat i just did is the Annualized Bpvols for the 10yr swap rateHowever,this is not what i need.I need a yield volatility instead so thatI can plug in a Black pricer.How would you calculate this?I would do....1. SR(t)/SR(t-1) - 12.calc the std dev of these daily returns3.multiply the outcome with sqrt(251) to annualizeWould you agree that this is the correct way to calc yield volatilityof the 10yr swap rate?Thank you and apologies for this question.